TAX-FREE FUND FOR UTAH
Supplement to the Prospectus (Class A Shares and Class C Shares)
dated October 31, 1997
As previously supplemented May 20, 1998
The paragraph captioned "Special Dealer Arrangements:" is
changed to read as follows:
Special Dealer Arrangements: During certain periods determined by
the Distributor, the Distributor (not the Fund) will pay any dealer
effecting a purchase of Class A Shares of the Fund using the
proceeds of a Qualified Redemption 1% of such proceeds payable over
a one year period. Whenever the Special dealer arrangements are in
effect the Prospectus will be supplemented.
The foregoing special dealer arrangements will be in effect
from June 4, 1998 until December 31, 1998 unless extended or
earlier terminated by another supplement to the Prospectus.
The date of this supplement is June 4, 1998.
<PAGE> TAX-FREE FUND FOR UTAH
Supplement to the Prospectuses
dated October 31, 1997
The Board of Trustees has determined that it would be in the
best interests of the Fund and its shareholders to authorize Aquila
Management Corporation, the Fund's founder and Manager, to change
the Fund's investment sub-adviser to Zions First National Bank,
Salt Lake City, Utah, from the current sub-adviser, First Security
Investment Management, Inc. This proposed change is subject to the
approval by the shareholders of the Fund of a new sub-advisory
agreement. A special meeting of the shareholders will be held on
July 15, 1998 to act upon the proposal. It is expected that proxy
material for the special meeting will be mailed to shareholders in
early June, 1998. If the new agreement is approved by the
shareholders it is expected that the change will be implemented by
August 1, 1998.
The date of this supplement is May 21, 1998
<PAGE>
Tax-Free Fund For Utah
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Prospectus
Class A Shares
Class C Shares October 31, 1997
The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Utah and
regular Federal income taxes as is consistent with preservation of
capital by investing principally in municipal obligations of Utah
issuers which pay interest exempt from Utah State and Federal
income taxes. These municipal obligations must, at the time of
purchase, either be rated within the four highest credit ratings
(considered as investment grade) assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or, if unrated, be
determined to be of comparable quality to municipal obligations so
rated by the Fund's Sub-Adviser, First Security Investment
Management, Inc.
The Fund is intended as an investment through which Utah
investors can participate in the financing of various Utah-oriented
public purpose projects which assist in the economic development of
the State and the quality of life of its residents. While the Fund
will seek to have 100% of its assets invested in tax-free municipal
obligations of Utah issuers, it may invest up to 35% of the Fund's
assets in tax-free municipal obligations of issuers of other
states.
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated October 31, 1997 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
the Fund's Shareholder Servicing Agent, at the address given below,
or by calling the telephone number(s) given below. The Additional
Statement contains information about the Fund and its management
not included in the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY FIRST SECURITY INVESTMENT MANAGEMENT,
INC., FIRST SECURITY BANK OF UTAH, N.A., OR ITS BANK OR NON-BANK
AFFILIATES OR BY ANY OTHER BANK. SHARES OF THE FUND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR
GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact the
Fund's Shareholder Servicing Agent: after November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-446-8824 toll free
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-446-8824 toll free or 732-855-5731
For General Inquiries & Yield Information,
Call 800-882-4937 toll free or 212-697-6666
The Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
[PICTURE]
St. George Water Treatment Facility
[PICTURE]
Primary Childrens Hospital in Salt Lake City
[PICTURE]
Intermountain Health Care Facility
[PICTURE]
Single Family Mortgage Bonds for Utah Housing
[LOGO]
TAX-FREE FUND FOR UTAH
[PICTURE]
St. George Regional Sewer Project
[PICTURE]
University of Utah
[PICTURE]
Salt Lake City International Airport
[PICTURE]
Jordan School District Elementary School
[PICTURE]
Davis School District Middle School
The Fund invests in tax-free municipal securities, primarily the
kinds of obligations issued by various communities and political
subdivisions within Utah. Most of these securities are used to
finance long-term municipal projects; examples are pictured above.
(See "Investment of the Fund's Assets.") The municipal obligations
which financed these particular projects were included in the
Fund's portfolio as of September 30, 1997, and together represented
22.64% of the Fund's portfolio. Since the portfolio is subject to
change, the Fund may not necessarily own these specific securities
at the time of the delivery of this Prospectus.
<PAGE>
HIGHLIGHTS
Tax-Free Fund For Utah (the "Fund"), founded by Aquila
Management Corporation (the "Manager") in 1992 and one of the
Aquilasm Group of Funds, is an open-end, non-diversified management
investment company (a "mutual fund") which invests in tax-free
municipal bonds, principally obligations issued by the State of
Utah, its counties and various other local authorities to finance
such long-term projects as schools, roads, hospitals and water
facilities throughout Utah or to finance short-term needs. (See
"Introduction.")
Tax-Free Income - The municipal obligations in which the Fund
invests pay interest which is exempt from both regular Federal
income taxes and State of Utah income taxes (except Utah income tax
on corporations). Dividends paid by the Fund from this income are
likewise free of both such taxes. It is, however, possible that in
certain circumstances a small portion of the dividends paid by the
Fund will be subject to income taxes. The Federal alternative
minimum tax may apply to some investors, but its impact will be
limited since not more than 20% of the Fund's net assets can be
invested in obligations paying interest which is subject to this
tax. The receipt of exempt-interest dividends from the Fund may
result in some portion of social security payments or railroad
retirement benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Fund will acquire only those municipal
obligations which, at the time of purchase, are within the four
highest credit ratings assigned by Moody's Investors Service, Inc.
or Standard & Poor's Corporation, or are determined to be of
comparable quality by the Fund's Sub-Adviser, First Security
Investment Management, Inc. In general there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade," but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Fund's Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of $50
or more, through the convenience of having your investment
electronically transferred from your financial institution account
into the Fund by Automatic Investment or Telephone Investment. (See
"How to Invest in the Fund.")
Alternative Purchase Plans - The Fund provides two alternative
ways for individuals to invest. (See "Alternative Purchase Plans.")
One way permits individual investors to pay distribution and
certain service charges principally at the time they purchase
shares; the other way permits investors to pay such costs over a
period of time, but without paying anything at time of purchase,
much as goods can be purchased on an installment plan. For this
purpose the Fund offers the following classes of shares, which
differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are
offered to anyone at net asset value plus a sales charge, paid
at the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger purchases.
(See "How to Purchase Class A Shares.") Class A Shares are
subject to an asset retention service fee under the Fund's
Distribution Plan at the rate of 0.20 of 1% of the average
annual net assets represented by the Class A Shares. (See
"Distribution Plan" and "Table of Expenses.")
* Level-Payment Class Shares ("Class C Shares") are offered to
anyone at net asset value with no sales charge payable at the
time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase at
the aggregate annual rate of 1% of the average annual net
assets of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC"); this charge is 1%, calculated on the net asset value
of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. (See
"Alternative Purchase Plans," "Computation of the Holding
Periods for Class C Shares" and "How to Purchase Class C
Shares.")
The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors and
Financial Intermediary Class Shares ("Class I Shares") which are
offered and sold only through certain financial intermediaries.
Class Y Shares and Class I Shares are not offered by this
Prospectus.
Class A Shares and Class C Shares are only offered for sale in
certain states. (See "How to Invest in the Fund.") If shares of the
Fund are sold outside those states the Fund can redeem them. If
your state of residence is not Utah, the dividends from the Fund
may be subject to income taxes of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Fund.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to you,
directly deposited into your financial institution account, or
automatically reinvested without sales charge in additional shares
of the Fund at the then-current net asset value. Specific classes
of shares will have different dividend amounts due to their
particular expense levels. (See "Dividend and Tax Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 70 issues with different maturities. (See
"Investment of the Fund's Assets.")
Local Portfolio Management - Fee Arrangements - First Security
Investment Management, Inc. of Salt Lake City, Utah, serves as the
Fund's Investment Sub-Adviser, providing experienced local
professional management. The Sub-Adviser was incorporated in 1984
and is a subsidiary of First Security Investment Services, Inc.,
which in turn is a wholly-owned subsidiary of First Security
Corporation, a Utah-headquartered financial services organization
with consolidated assets of $13.1 billion as of August 31, 1997. In
addition to advising the Fund, First Security's advisory experience
includes the management of The Achievement Family of Funds, funds
unrelated to the Fund, and the provision of investment management
services to banks and thrift institutions, corporate and
profit-sharing trusts, Taft-Hartley, municipal and state retirement
funds, charitable foundations, endowments and individual investors
throughout the United States. First Security is registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended. It has offices at 61 South Main Street, Salt Lake City,
Utah 84111, 119 North 9th Street, Boise, Idaho 83730, 219 Central
Avenue, N.W., Albuquerque, New Mexico 87102 and 530 Las Vegas
Boulevard, Las Vegas Nevada 89101. First Security Bank of Utah,
N.A., an affiliate of First Security, is the largest bank in the
State of Utah and one of the largest banks in the Rocky Mountain
region. The Fund pays fees at a rate of up to 0.50 of 1% of average
annual net assets to its Manager which in turn pays up to 0.23 of
1% of average annual net assets to its Sub-Adviser (for total fees
at a rate of up to 0.50 of 1% of average annual net assets),
although some or all of these fees may be waived temporarily.
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset value
by telephone, FAX or mail request, with proceeds being sent to a
predesignated financial institution if you have elected Expedited
Redemption. Proceeds will be wired or transferred through the
facilities of the Automated Clearing House, wherever possible, upon
request, if in an amount of $1,000 or more, or will be mailed. For
these and other redemption procedures see "How to Redeem Your
Investment." There are no penalties or redemption fees for
redemption of Class A Shares. However, there is a contingent
deferred sales charge with respect to certain Class A Shares which
have been purchased in amounts of $1 million or more (see "Purchase
of $1 Million or More"). If you redeem Class C Shares before you
have held them for 12 months from the date of purchase you will pay
a contingent deferred sales charge ("CDSC") at the rate of 1%. (See
"Alternative Purchase Plans" - "Class C Shares.")
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class A or Class C Shares of the
Fund into corresponding classes of shares of other Aquila-sponsored
tax-free municipal bond mutual funds or two Aquila-sponsored equity
funds. You may also exchange them into shares of the
Aquila-sponsored money market funds. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Fund's
portfolio securities, which fluctuate with market conditions,
including prevailing interest rates. Accordingly, the proceeds of
redemptions may be more or less than your original cost. (See
"Factors Which May Affect the Value of the Fund's Investments and
Their Yields.") The Fund's assets, being primarily or entirely Utah
issues, are subject to economic and other conditions affecting
Utah. (See "Risk Factors and Special Considerations Regarding
Investment in Utah Double-Exempt Obligations.") Moreover, the Fund
is classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Fund's Assets.")
Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual Report
and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
TABLE OF EXPENSES
Class A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases.......... 4.00% None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Maximum Deferred Sales Charge ..................... None(1) 1.00%(2)
Redemption Fees ................................... None None
Exchange Fee ...................................... None None
Annual Fund Operating Expenses(3)(4)
(as a percentage of average net assets)
Management Fee After Waiver(5).......... .......... 0.06% 0.06%
12b-1 Fee After Expense Reimbursement.............. 0.00% 0.75%
All Other Expenses After Expense
Reimbursement..................................... 0.30% 0.55%
Service Fee ..................................... None 0.25%
Other Expenses .................................. 0.30% 0.30
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waiver................... 0.36% 1.36%
Example (6)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares.............. $44 $51 $59 $84
Class C Shares
With complete redemption
at end of period....... $24 $43 $74 $111(7)
With no redemption $14 $43 $74 $111(7)
<FN>
(1) Certain shares purchased in transactions of $1 million or more without
a sales charge may be subject to a contingent deferred sales charge of up
to 1% upon redemption during the first four years after purchase. See
"Purchase of $1 Million or More."
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the Fund during its most
recent fiscal year, restated to reflect current arrangements.
</FN>
<FN>
(4) Fees are being waived by the Adviser and Administrator and it is
anticipated that once the asset size of the Fund reaches approximately $60
million these waivers will be increasingly reduced as the asset size of
the Fund increases, so that when assets exceed approximately $100 million
a substantial portion or all of these fees will be paid. Also, operating
expenses are being subsidized through reimbursement by the Administrator.
This subsidy is being phased out progressively so that the Fund will bear
its own expenses, other than advisory and administration fees, once its
asset size reaches approximately $60 million. The undertakings of the
Adviser and the Administrator as to fee waivers and the practices of the
Administrator as to expense reimbursement may operate to reduce the fees
and expenses of the Fund (see "Management Arrangements"). Other expenses
do not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Without fee waivers and expense reimbursement
and including the offset in custodian fees, expenses would have been
incurred at the following annual rates: for Class A Shares, management
fee, 0.50%; 12b-1 fee, 0.20%; other expenses, 0.63%, for total operating
expenses of 1.33%; for Class C Shares, management fee, 0.50%; 12b-1 fee,
0.75%; service fee, 0.25%; other expenses, 0.63%, for total operating
expenses of 2.13%.
</FN>
<FN>
(5) The Fund pays the Manager an advisory fee at the annual rate of 0.50%
of 1% of average annual net assets of which 0.44 of 1% is currently being
waived; the Manager pays the Sub-Adviser a sub-advisory fee at the annual
rate of 0.23 of 1% of average annual net assets of which 0.17 of 1% is
currently being waived. (See "Management Arrangements.")
</FN>
<FN>
(6) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge of
$40 for a $1,000 investment) and estimated annual Fund operating expenses.
It is also based upon amounts at the beginning of each year which
includes the prior year's assumed results. A year's results consist of
an assumed 5% annual return less total operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure represents the
cumulative expenses so determined for the period specified.
</FN>
<FN>
(7) Six years after the date of purchase, Class C Shares are automatically
converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE
EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A
PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER. THE EXAMPLE
ALSO REFLECTS THE MAXIMUM SALES CHARGE. SEE "HOW TO INVEST IN THE FUND".
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The above table should not be considered as a
commitment or prediction that any fees, or that any particular portion
of fees, will be waived, or that any particular expenses will be
reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is included
in the Fund's June 30, 1997 financial statements contained in its Annual
Report, which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction with
the financial statements and related notes. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class C(2)
Year Year Period(4)
Ended Ended Ended
June 30 June 30, June 30,
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year .................. $9.74 $9.59 $9.32 $10.00 $9.74 9.77
Income from Investment
Operations:
Net investment income .... 0.52 0.54 0.55 0.55 0.44 0.05
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.21 0.15 0.27 (0.65) 0.21 (0.03)
Total from Investment
Operations ............. 0.73 0.69 0.82 (0.10) 0.65 0.02
Less Distributions:
Dividends from net
investment income ...... (0.53) (0.54) (0.55) (0.55) (0.45) (0.05)
Distributions from
capital gains .......... - - - (0.03) - -
Total Distributions ...... (0.53) (0.54) (0.55) (0.58) (0.45) (0.05)
Net Asset Value, End of
Year ..................... $9.94 $9.74 $9.59 $9.32 $9.94 $9.74
Total Return (not reflecting
sales load) (%).......... 7.72 7.17 9.09 (1.09) 6.80 0.20+
Ratios/Supplemental Data
Net Assets, End of Year
($ thousands) ......... 29.071 28,881 27,536 26,116 41 0.1
Ratio of Expenses to
Average Net Assets(%)... 0.27 0.19 0.08 0.03 1.07 0.14+
Ratio of Net Investment
Income to Average Net
Assets (%).............. 5.45 5.49 5.85 5.58 4.65 0.50+
Portfolio Turnover Rate(%) 5.09 11.15 22.92 27.53 5.09 11.15
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income($)... 0.42 0.43 0.43 0.40 0.35 0.04
Ratio of Expenses to
Average Net Assets(%).... 1.33 1.30 1.30 1.60 2.13 0.23+
Ratio of Net Investment
Income to Average Net
Assets(%)................ 4.39 4.37 4.63 4.00 3.59 0.42+
<CAPTION>
Class A(1)
Period (3)
ended
June 30, 1993
<C>
9.60
0.50
0.40
0.90
(0.50)
-
(0.50)
10.00
9.67+
12,938
0*
5.64*
36.52+
0.27
2.67*
2.97*
<FN>
(1) Designated as Class A Shares on May 21, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 21, 1996.
</FN>
<FN>
(3) From July 24, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
(4) From May 21, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment for
investors (other than corporations) who seek income exempt from
State of Utah and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Utah Double-Exempt Obligations, as defined
below, which may include obligations of certain non-Utah issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Utah Double-Exempt Obligations which may, but not necessarily will,
be more diversified, higher yielding or more stable and more liquid
than you might be able to obtain on an individual basis by direct
purchase of Utah Double-Exempt Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Utah Double-Exempt Obligations.
Utah Double-Exempt Obligations are a type of municipal
obligation. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes; and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as highways,
bridges, schools, hospitals, housing, mass transportation, streets
and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refunding of
outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both State of Utah and regular
Federal income taxes as is consistent with the preservation of
capital, the Fund will invest in Utah Double-Exempt Obligations (as
defined below). There is no assurance that the Fund will achieve
its objective, which is a fundamental policy of the Fund. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Utah Double-Exempt Obligations" means obligations, including
those of non-Utah issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from regular Federal income taxes and from Utah income
taxes other than taxes on corporations. Although exempt from
regular Federal income tax, interest paid on certain types of Utah
Double-Exempt Obligations, and dividends which the Fund might pay
from this interest, are preference items as to the Federal
alternative minimum tax; for further information, see "Dividend and
Tax Information." As a fundamental policy, at least 80% of the
Fund's net assets will be invested in Utah Double-Exempt
Obligations the income paid upon which will not be subject to the
alternative minimum tax; accordingly, the Fund can invest up to 20%
of its net assets in obligations the income from which is subject
to the Federal alternative minimum tax. The Fund may refrain
entirely from purchasing these types of Utah Double-Exempt
Obligations. While non-taxable to individuals and other taxpayers,
interest received from Utah and other municipal issuers is subject
to State of Utah taxes on corporations. (See "Utah Tax Information"
under "Dividend and Tax Information" below.)
Interest on bonds or other obligations issued by or under the
authority of states other than Utah and their agencies and
instrumentalities, Puerto Rico, Guam, the Northern Mariana Islands,
and the Virgin Islands are exempt from Utah income taxes (other
than certain taxes on corporations), as well as Federal income
taxes. The Fund will not purchase obligations of non-Utah issuers
unless Utah Double-Exempt Obligations of Utah issuers of the
desired quality, maturity and interest rate are not available. In
selecting Utah Double-Exempt Obligations of non-Utah issuers, the
Fund will choose obligations which in the judgement of First
Security Investment Management, Inc., the Fund's investment adviser
(the "Sub-Adviser"), are most appropriate to achieve the objectives
of the Fund.
As a Utah-oriented fund, under normal circumstances at least
65% of the Fund's total assets will be invested in Utah
Double-Exempt Obligations of Utah issuers. The Fund invests only in
Utah Double-Exempt Obligations.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of
quality-oriented (investment grade) securities, the Utah
Double-Exempt Obligations which the Fund will purchase must, at the
time of purchase, either (i) be rated within the four highest
credit ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Sub-Adviser, subject to the direction
and control of the Fund's Board of Trustees. Municipal obligations
rated in the fourth highest credit rating are considered by such
rating agencies to be of medium quality and thus may present
investment risks not present in more highly rated obligations. Such
bonds lack outstanding investment characteristics and may in fact
have speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Utah Double-Exempt Obligation is downgraded such that it
could not then be purchased by the Fund, or, in the case of an
unrated Utah Double-Exempt Obligation, if the Sub-Adviser
determines that the unrated obligation is no longer of comparable
quality to those rated obligations which the Fund may purchase, it
is the current policy of the Fund to cause any such obligation to
be sold as promptly thereafter as the Sub-Adviser in its discretion
determines to be consistent with the Fund's objectives; such
obligation remains in the Fund's portfolio until it is sold. In
addition, because a downgrade often results in a reduction in the
market price of a downgraded obligation, sale of such an obligation
may result in a loss. (See Appendix A to the Additional Statement
for further information as to these ratings.) The Fund can purchase
industrial development bonds only if they meet the definition of
Utah Double-Exempt Obligations, i.e., the interest on them is
exempt from State of Utah and regular Federal income taxes other
than Utah income taxes on corporations.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Fund, at
least 50% of its assets must consist of (i) cash; and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Fund's assets. If the Fund had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Fund may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Fund invests in the
securities of specific issuers, the more the Fund is exposed to
risks associated with investments in those issuers. The Fund's
assets, being primarily or entirely Utah issues, are accordingly
subject to economic and other conditions affecting Utah. (See "Risk
Factors and Special Considerations Regarding Investment in Utah
Double-Exempt Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and
cash equivalents in attempting to protect against declines in the
value of its investments and other market risks.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Utah Double-Exempt Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Utah Double-Exempt Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Utah Double-Exempt Obligations. All
such participation interests must meet the Fund's credit
requirements. (See "Limitation to 10% as to Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis when it has the intention of
acquiring them. The Utah Double-Exempt Obligations so purchased are
subject to market fluctuation and no interest accrues to the Fund
until delivery and payment take place; their value at the delivery
date may be less than the purchase price. The Fund cannot enter
into when-issued commitments exceeding in the aggregate 15% of the
market value of the Fund's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Fund chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Fund places an amount of assets equal in value
to the amount due on the settlement date for the when-issued or
delayed delivery securities being purchased in a segregated account
with the Custodian, which is marked to market every business day.
(See the Additional Statement for further information.)
Limitation to 10% as to Certain Investments
The Fund cannot purchase Utah Double-Exempt Obligations that
are not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Utah Double-Exempt Obligations as to which the
Fund can exercise the right to demand payment in full within three
days and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in
(i) Utah Double-Exempt Obligations the interest on which is paid
from revenues of similar type projects or (ii) industrial
development bonds, unless the Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Utah Double-Exempt Obligations in which the
Fund invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Utah Double-Exempt Obligations, the
value of these obligations will normally go down; if these rates go
down, the value of these obligations will normally go up. Changes
in value and yield based on changes in prevailing interest rates
may have different effects on short-term Utah Double-Exempt
Obligations than on long-term obligations. Long-term obligations
(which often have higher yields) may fluctuate in value more than
short-term ones. The Fund's portfolio will represent a blend of
short-term and long-term obligations designed to reduce
fluctuations in the net asset value of the shares of the Fund.
Risk Factors and Special Considerations Regarding Investment in
Utah Double-Exempt Obligations of Utah Issuers
The Fund provides Utah residents with the benefits of
investing primarily in obligations of issuers of the State of Utah,
thereby participating in the financing of various Utah-oriented
public purpose projects which assist in the economic development of
the State and the quality of life of its residents. However, since
the Fund invests primarily in obligations of Utah issuers, there is
less diversification of the portfolio of the Fund and there may be
less breadth to the market for its portfolio securities than is
available for obligations of non-Utah issuers. In addition, the
yield of obligations of Utah issuers in which the Fund invests may
not be as high as that available from obligations of issuers of
other states, for various reasons, including favorable evaluation
in credit markets of the credit quality of Utah issuers as compared
to other issuers. The following is a discussion of various factors
that might influence the ability of Utah issuers to pay principal
and interest when due on the Utah Double-Exempt Obligations
contained in the portfolio of the Fund. Such information is derived
from sources that are generally available to investors and is
believed by the Fund to be accurate but has not been independently
verified and may not be complete.
Utah's economy is dominated by service industries, trade,
government and various manufacturing sectors. While Utah's economy
has significantly outperformed the national economy for several
years, and its overall employment growth rate in recent years has
ranked among the highest in the nation, there can be no assurance
that such conditions will continue in the future.
The population of the State has increased in recent years,
with the increase being attributable to both natural population
increase and net in-migration. From fiscal years 1984 through 1989
the State experienced out-migration because of an economy outpaced
by the growth of its labor force and a decline in the State's
energy producing industries. In fiscal year 1996, Utah's population
rose 2.2% to 2,000,100, including 13,400 in-migrants. It is not
known at the present time whether current trends will continue.
Utah has more school-age children and fewer working adults, as a
percentage of its population, than any other state; hence, to pay
the State's education costs, Utah households pay more in state and
local taxes per household than the national average. This current
relatively high level of taxation could adversely affect the
ability of Utah issuers to raise taxes substantially or at all.
A large percentage of the land in Utah is owned by the Federal
Government or included in Indian reservations, thereby reducing the
tax base of the State and its political subdivisions. Since 1991,
defense-related employment has lost 15,000 jobs. However, the
conversion of one large military facility to manufacturing will
soon be completed. Some communities in the State contain major
industries heavily dependent on defense-related government
contracts for their revenues. The termination of such government
contracts could increase unemployment and reduce taxes paid by such
industries.
The ability of Utah and its political subdivisions to borrow
money and to levy and collect taxes is limited by constitutional
and statutory restrictions such as debt limitations and limitations
on revenue increases. In recent years attempts have been made by
popular initiative to further restrict the borrowing and taxing
capacity of the State and its political subdivisions. It is not
possible to predict whether any such proposals will be enacted in
the future or their possible impact on State or local government
financing.
The State receives revenues from three principal sources; (a)
taxes and licenses; (b) Federal grants-in-aid; and (c) fees, the
State's share of mineral royalties, bonuses on Federal land and
other miscellaneous charges and receipts. In the 1996 fiscal year,
24.8% of those revenues came from sales taxes. The State collects
an individual income tax and a corporate franchise tax, but all net
revenues from such taxes are distributed to local school districts.
Local governments are heavily dependent on ad valorem property
tax revenues, but also can receive revenues from other local taxes
and fees. There can be no assurance that a material downturn in the
State's economy, with the resulting impact on State and local
finances, will not adversely affect the market value of the Utah
Double-Exempt Obligations held in the Fund or the ability of the
respective obligors to make debt service payments on such Utah
Double-Exempt Obligations.
The availability of water is a significant concern in Utah.
During the past decade the State has experienced periods of both
flooding and drought. Water issues will likely affect the growth
and prosperity of the State in the future.
The Utah Double-Exempt Obligations in which the Fund may
invest from time to time include general obligation bonds, revenue
bonds, industrial revenue bonds and special tax assessment bonds,
and the sensitivity of each of these types of investments to the
general and economic factors discussed above may vary
significantly. No assurance can be given as to the effect, if any,
that these factors, individually or in the aggregate, may have on
any individual Utah Double-Exempt Obligations or on the Fund as a
whole.
Obligations of non-Utah issuers are subject to the risks of
general economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and cannot
do. Certain of these policies, identified in the Prospectus and the
Additional Statement as "fundamental policies," cannot be changed
unless the holders of a "majority," as defined in the 1940 Act, of
the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations meeting the standards stated under
"Investment of the Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Utah Double-Exempt Obligations which it
is permitted to buy (see "Investment of the Fund's Assets"); this
is investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. Interest on borrowings would reduce the Fund's
income. Except in connection with borrowings, the Fund will not
issue senior securities. The Fund will not purchase any Utah
Double-Exempt Obligations while it has any outstanding borrowings
which exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the New
York Stock Exchange is open (a "business day"),by dividing the
value of the Fund's net assets (i.e., the value of the assets less
liabilities) allocable to each class by the total number of shares
of such class then outstanding. Determination of the value of the
Fund's assets is subject to the direction and control of the Fund's
Board of Trustees. In general, it is based on market value, except
that Utah Obligations maturing in 60 days or less are generally
valued at amortized cost; see the Additional Statement for further
information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to invest in the Fund,
through two separate classes of shares. All classes represent
interests in the same portfolio of Utah Double-Exempt Obligations.
The primary difference between the classes of shares offered to
individuals lies in their sales charge structures and ongoing
expenses, as described below. You should choose the class that best
suits your own circumstances and needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By purchasing
Class C Shares, you will pay a sales charge over a period of six
years after purchase but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
You are subject to a contingent deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are offered to
anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.0% of the public
offering price, with lower rates for larger purchases. When
you purchase Class A Shares, the amount of your investment is
reduced by the applicable sales charge. Class A Shares are
subject to an asset retention service fee under the Fund's
Distribution Plan at the rate of 0.20 of 1% of the average
annual net assets represented by the Class A Shares. (See
"Distribution Plan" and "Table of Expenses.") Certain Class A
Shares purchased in transactions of $1 million or more are
subject to a contingent deferred sales charge. (See "Purchase
of $1 Million or More.")
Class C Shares, "Level-Payment Class Shares," are offered to
anyone at net asset value with no sales charge payable at
purchase but with a level charge for distribution fees and
service fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets
of the Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six years
after the date of purchase, Class C Shares, including Class C
Shares acquired in exchange for other Class C Shares under the
Exchange Privilege (see "Exchange Privilege"), are
automatically converted to Class A Shares. If you redeem Class
C Shares before you have held them for 12 months from the date
of purchase, you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset value
of the redeemed Class C Shares at the time of purchase or of
redemption, whichever is less. The amount of any CDSC will be
paid to the Distributor. The CDSC does not apply to shares
acquired through the reinvestment of dividends on Class C
Shares or to any Class C Shares held for more than 12 months
after purchase. For purposes of applying the CDSC and
determining the time of conversion, the 12-month and six-year
holding periods are considered modified by up to one month
depending upon when during a month your purchase of such
shares is made. (See "Computation of Holding Periods for Class
C Shares" and "How to Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions, second
of any Class C Shares you have held for more than 12 months from
the date of purchase and finally of those Class C Shares as to
which the CDSC is payable which you have held the longest. This
will result in your paying the lowest possible CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will be
deemed to have been made on the first business day of that month at
the average cost of all purchases made during that month. The
12-month CDSC holding period will end on the first business day of
the 12th calendar month after the date your purchase is deemed to
have been made. Accordingly, the CDSC holding period applicable to
your Class C Shares may be up to one month less than the full 12
months depending upon when your actual purchase was made during a
month. Running of the 12-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for Class C Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class C
Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day of
the month following that in which the sixth anniversary of your
purchase of the Class C Shares occurred, except as noted below.
Accordingly, the holding period applicable to your Class C Shares
may be up to one month more than the six years depending upon when
your actual purchase was made during a month. Because the per share
value of Class A Shares may be higher than that of Class C Shares
at the time of conversion, you may receive fewer Class A Shares
than the number of Class C Shares converted. If you have made one
or more exchanges of Class C Shares among the Aquila-sponsored
tax-free municipal bond funds or equity funds under the Exchange
Privilege, the six-year holding period is deemed to have begun on
the date you purchased your original Class C Shares of the Fund or
of another of the Aquila bond or equity funds. The six-year holding
period will be suspended by one month for each period of thirty
days during which you hold shares of a money market fund you have
received in exchange for Class C Shares under the Exchange
Privilege. (See "Exchange Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge public offering price
Contingent None (except for Maximum CDSC of 1% if
Deferred certain purchases shares redeemed before 12
Sales Charge over $1 Million) months; 0% after 12 months
Distribution and 0.20 of 1% Distribution fee of 0.75
Service Fees of 1% and a service fee
of 0.25 of 1% for a total
of 1%, payable for six
years
Other Information Initial sales charge Shares convert to Class
waived or reduced in A Shares after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between Class
A Shares and Class C Shares. It is recommended that any investment
in the Fund be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual service
and distribution fees on the Class C Shares will equal or exceed
the total cost of the initial 4% maximum initial sales charge and
0.20 of 1% annual fee payable for Class A Shares. For example, if
equal amounts were paid at the same time for Class A Shares (where
the amount invested is reduced by the amount of the sales charge)
and for Class C Shares (which carry no sales charge at the time of
purchase) and the net asset value per share remained constant over
time, the total of such costs for Class C Shares would equal the
total of such costs for Class A Shares after approximately four and
two-thirds years. This example assumes no redemptions and
disregards the time value of money. Purchasers of Class C Shares
have all of their investment dollars invested from the time of
purchase, without having their investment reduced at the outset by
the initial sales charge payable for Class A Shares. If you invest
in Class A Shares you will pay the entire sales charge at the time
of purchase. Accordingly, if you expect to redeem your shares
within a reasonably short time after purchase, you should consider
the total cost of such an investment in Class A Shares compared
with a similar investment in Class C Shares. The example under
"Table of Expenses" shows the effect of Fund expenses for both
classes if a hypothetical investment in each of the classes is held
for 1, 3, 5 and 10 years. (See the Table of Expenses.)
Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends of
each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the costs
of printing and mailing annual reports to its own shareholders.
HOW TO INVEST IN THE FUND
The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales agreement
with Aquila Distributors, Inc. (the "Distributor") or through the
Distributor. There are two ways to make an initial investment: (i)
order the shares through your investment broker or dealer, if it is
a selected dealer; or (ii) mail the Application with payment to the
Fund's Shareholder Servicing Agent (the "Agent") at the address on
the Application. If you purchase Class A Shares, the applicable
sales charge will apply in either instance. Subsequent investments
are also subject to the applicable sales charges. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be made
in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class C
Shares is $1,000, except as otherwise stated in the Prospectus or
Additional Statement. You may also make an initial investment of at
least $50 by establishing an Automatic Investment Program. To do
this you must open an account for automatic investments of at least
$50 each month and make an initial investment of at least $50. (See
below and "Automatic Investment Program" in the Application.) Such
investment must be drawn in United States dollars on a United
States commercial or savings bank, a credit union or a United
States branch of a foreign commercial bank (each of which is a
"Financial Institution"). You may make subsequent investments in
the same class of shares in any amount (unless you have an
Automatic Withdrawal Plan). Your subsequent investment may be made
through a selected dealer or by forwarding payment to the Agent,
with the name(s) of account owner(s), the account number, the name
of the Fund and the class of shares to be purchased. With
subsequent investments, please send the pre-printed stub attached
to the Fund's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application designating
this feature, or, after your account has been opened, a Ready
Access Features form available from the Distributor or the Agent.
A pre-determined amount can be regularly transferred for investment
("Automatic Investment"), or single investments can be made upon
receipt by the Agent of telephone instructions from anyone
("Telephone Investment"). The maximum amount of each Telephone
Investment is $50,000. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share for Class
C Shares and the net asset value per share plus the applicable
sales charge for Class A Shares. The offering price determined on
any day applies to all purchase orders received by the Agent from
selected dealers that day, except that orders received by it after
4:00 p.m. New York time will receive that day's offering price only
if such orders were received by selected dealers from customers
prior to such time and transmitted to the Distributor prior to its
close of business that day (normally 5:00 p.m. New York time); if
not so transmitted, such orders will be filled at the next
determined offering price. Selected dealers are required to
transmit orders promptly. Investments by mail are made at the
offering price next determined after receipt of the purchase order
by the Agent. Purchase orders received on other than a business day
will be executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next business
day. In the case of Telephone Investment your order will be filled
at the next determined offering price. If your order is placed
after the time for determining the net asset value of the Fund
shares for any day it will be executed at the price determined on
the following business day. The sale of shares will be suspended
during any period when the determination of net asset value is
suspended and may be suspended by the Distributor when the
Distributor judges it in the Fund's best interest to do so.
At the date of the Prospectus, Class A Shares and Class C
Shares of the Fund are available only in the following states:
Arizona, Colorado, District of Columbia, Florida, Hawaii, New
Jersey, New York and Utah.
If you do not reside in one of these states you should not
purchase shares of the Fund. If Class A Shares or Class C Shares of
the Fund are sold outside of these states the Fund can redeem them.
Such a redemption may result in a loss to you and may have tax
consequences.
In addition, if your state of residence is not Utah, the
dividends from the Fund may not be exempt from income tax of the
state in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of the Fund.
How to Purchase Class A Shares (Front-Payment Class Shares)
The following table shows the amount of the sales charge to a
"single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions") for Class A Shares:
<TABLE>
<CAPTION>
Sales Sales Commissions
Charge Charge as as
as Approximate Percentage
Percentage Percentage of
Offering of Amount Offering
Price Invested Price
<S> <C> <C> <C>
Less than $25,000........ 4.00% 4.17% 3.50%
$25,000 but less
than $50,000............ 3.75% 3.90% 3.50%
$50,000 but less
than $100,000........... 3.50% 3.63% 3.25%
$100,000 but less
than $250,000........... 3.25% 3.36% 3.00%
$250,000 but less
than $500,000........... 3.00% 3.09% 2.75%
$500,000 but less
than $1,000,000......... 2.50% 2.56% 2.25%
</TABLE>
For purchases of $1 million or more see "Purchase of $1
Million or More," below.
The table of sales charges is applicable to purchases of Class
A Shares by a "single purchaser," i.e.: (a) an individual; (b) an
individual together with his or her spouse and their children under
the age of 21 purchasing Class A Shares for his, her or their own
accounts; (c) a trustee or other fiduciary purchasing Class A
Shares for a single trust estate or a single fiduciary account; and
(d) a tax-exempt organization enumerated in Section 501(c)(3) or
(13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the entire
sales charge is reallowed, such selected dealers may be deemed to
be underwriters as that term is defined in the Securities Act of
1933.
Purchase of $1 Million or More
Class A Shares issued under the following circumstances are
called "CDSC Class A Shares": (i) Class A Shares issued in a single
purchase of $1 million or more by a single purchaser; and (ii) all
Class A Shares issued in a single purchase to a single purchaser
the value of which, when added to the value of the CDSC Class A
Shares and Class A Shares on which a sales charge has been paid,
already owned at the time of such purchase, equals or exceeds $1
million. CDSC Class A Shares also include certain Class A Shares
issued under the program captioned "Special Dealer Arrangements,"
below. CDSC Class A Shares do not include (i) Class A Shares
purchased without sales charge pursuant to the terms described
under "General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.
When you purchase CDSC Class A Shares you will not pay a sales
charge at the time of purchase, and the Distributor will pay to any
dealer effecting such a purchase an amount equal to 1% of the sales
price of the shares purchased for purchases of $1 million but less
than $2.5 million, 0.50 of 1% for purchases of $2.5 million but
less than $5 million, and 0.25 of 1% for purchases of $5 million or
more.
If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a special
contingent deferred sales charge based on the lesser of (i) the net
asset value of your redeemed CDSC Class A Shares at the time of
purchase or (ii) the net asset value of your redeemed CDSC Class A
Shares at the time of redemption (the "Redemption Value"). The
special charge will be an amount equal to 1% of the Redemption
Value if the redemption occurs within the first two years after
purchase, and 0.50 of 1% of the Redemption Value if the redemption
occurs within the third or fourth year after purchase. The special
charge will apply to redemptions of CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent, as described
below under "Reduced Sales Charges for Certain Purchases of Class
A Shares." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or to
any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is applicable,
it will be assumed that the CDSC Class A Shares you have held the
longest are the first CDSC Class A Shares to be redeemed, unless
you instruct the Agent otherwise. It will also be assumed that if
you have both CDSC Class A Shares and non-CDSC Class A Shares the
non-CDSC Class A Shares will be redeemed first.
For purposes of determining the holding period for CDSC Class
A Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that month
at the average cost of all purchases made during that month. The
four-year holding period will end on the first business day of the
48th calendar month after the date your purchase is deemed to have
been made. Accordingly, the CDSC holding period applicable to your
CDSC Class A Shares may be up to one month less than the full 48
months depending upon when your actual purchase was made during a
month. Running of the 48-month CDSC holding period will be
suspended for one month for each period of thirty days during which
you have held shares of a money market fund you have received in
exchange for CDSC Class A Shares under the Exchange Privilege. (See
"Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation: If you are a "single purchaser" you may
benefit from a reduction of the sales charge in accordance with the
above schedule for subsequent purchases of Class A Shares if the
cumulative value (at cost or current net asset value, whichever is
higher) of Class A Shares you have previously purchased with a
sales charge and still own, together with Class A Shares of your
subsequent purchase with such a charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers, by
the directors, officers and certain employees, retired employees
and representatives of the Sub-Adviser and its parent and
affiliates, the Administrator and the Distributor, by selected
dealers and brokers and their officers and employees, by certain
persons connected with firms providing legal, advertising or public
relations assistance, by certain family members of, and plans for
the benefit of, the foregoing, and for the benefit of trust or
similar clients of banking institutions over which these
institutions have full investment authority if the Fund or the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that the
Class A Shares will not be resold except through redemption. There
may be tax consequences of these purchases. Such purchasers should
consult their own tax counsel. Class A Shares may also be issued at
net asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a party.
The Fund permits the sale of its Class A Shares at prices that
reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group is (i) a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing Class A Shares, (iii) gives its endorsement
or authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker or
dealer; and (iv) complies with the conditions of purchase that are
set forth in any agreement entered into between the Fund and the
group, representative or broker or dealer. At the time of purchase
you must furnish the Distributor with information sufficient to
permit verification that the purchase qualifies for a reduced sales
charge, either directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Fund may
be purchased at net asset value without sales charge (except as set
forth below under "Special Dealer Arrangements") to the extent that
the aggregate net asset value of such Class A Shares does not
exceed the proceeds from a redemption (a "Qualified Redemption"),
made within 120 days prior to such purchase, of shares of another
investment company on which a sales charge, including a contingent
deferred sales charge, has been paid. Additional information is
available from the Distributor.
To qualify, the following special procedures must be followed:
1. A completed Application (included in the Prospectus) and
payment for the Class A Shares to be purchased must be sent to the
Distributor, Aquila Distributors, Inc., 380 Madison Avenue, Suite
2300, New York, NY 10017 and should not be sent to the Shareholder
Servicing Agent of the Fund. (This instruction replaces the mailing
address contained on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective shareholder
has made a Qualified Redemption in an amount at least equal to the
net asset value of the Class A Shares to be purchased. Satisfactory
evidence includes a confirmation of the date and the amount of the
redemption from the investment company, its transfer agent or the
investor's broker or dealer, or a copy of the investor's account
statement with the investment company reflecting the redemption
transaction.
3. You must complete and return to the Distributor a Transfer
Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods determined
by the Distributor, the Distributor (not the Fund) will pay to any
dealer effecting a purchase of Class A Shares of the Fund using the
proceeds of a Qualified Redemption the lesser of (i) 1% of such
proceeds or (ii) the same amounts described under "Purchase of $1
Million or More" above, on the same terms and conditions. Class A
Shares of the Fund issued in such a transaction will be CDSC Class
A Shares and if you thereafter redeem all or part of such shares
during the four-year period from the date of purchase you will be
subject to the special contingent deferred sales charge described
under "Purchase of $1 Million or More," above, on the same terms
and conditions. Whenever the Special Dealer Arrangements are in
effect the Prospectus will be supplemented.
How to Purchase Class C Shares (Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered at net
asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. If you redeem Class C Shares before you have
held them for 12 months from the date of purchase you will pay a
contingent deferred sales charge ("CDSC"). The CDSC is charged at
the rate of 1%, calculated on the net asset value of the redeemed
Class C Shares at the time of purchase or at redemption, whichever
is less. There is no CDSC after Class C Shares have been held
beyond the applicable period. The CDSC does not apply to Class C
Shares acquired through the reinvestment of dividends on Class C
Shares.
The Distributor will pay to any dealer effecting a purchase of
Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C Shares.
In order to participate in a Payroll Plan, you should make
arrangements with your own employer's payroll department, and you
must complete and sign any special application forms which may be
required by your employer. You must also complete the Application
included in the Prospectus. Once your application is received and
put into effect, under a Payroll Plan the employer will make a
deduction from payroll checks in an amount you determine, and will
remit the proceeds to the Fund. An investment in the Fund will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Fund receives the
funds from your employer. The Fund will send a confirmation of each
transaction to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to you
in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share).
No share certificates will be issued for Class C Shares. Share
certificates for Class A Shares will be issued only if you so
request in writing to the Agent. All share certificates previously
issued by the Fund represent Class A Shares. No certificates will
be issued for fractional Class A Shares or if you have elected
Automatic Investment or Telephone Investment for Class A Shares
(see "How to Invest in the Fund" above) or Expedited Redemption
(see "How to Redeem Your Investment" below). If certificates for
Class A Shares are issued at your request, Expedited Redemption
Methods described below will not be available. In addition, you may
incur delay and expense if you lose the certificates.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. The Plan has three parts.
Under one part of the Plan, the Fund is authorized to make
payments with respect to Class A Shares ("Class A Permitted
Payments") to Qualified Recipients, which payments shall be made
through the Distributor or shareholder servicing agent as
disbursing agent and may not exceed, for any fiscal year of the
Fund (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.20 of 1% of the average
annual net assets represented by the Class A Shares of the Fund.
Such payments shall be made only out of the Fund's assets allocable
to the Class A Shares. "Qualified Recipients" means broker-dealers
or others selected by the Distributor, including but not limited to
any principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements and which have
rendered assistance (whether direct, administrative, or both) in
the distribution and/or retention of the Fund's Class A Shares or
servicing of accounts of shareholders owning Class A Shares.
Under another part of the Plan, the Fund is authorized to make
payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.75 of 1% of the
average annual net assets represented by the Class C Shares of the
Fund. Such payments shall be made only out of the Fund's assets
allocable to the Class C Shares. "Qualified Recipients" means
broker-dealers or others selected by the Distributor, including but
not limited to any principal underwriter of the Fund, with which
the Fund or the Distributor has entered into written agreements and
which have rendered assistance (whether direct, administrative, or
both) in the distribution and/or retention of the Fund's Class C
Shares or servicing of accounts of shareholders owning Class C
Shares. Payments with respect to Class C Shares during the first
year after purchase are paid to the Distributor and thereafter to
other Qualified Recipients.
During the fiscal year ended June 30, 1997, $58,706 was paid
to Qualified Recipients under the Plan with respect to Class A
Shares, of which $1,749 was retained by the Distributor. (See the
Additional Statement for a description of the Distribution Plan.)
During the same period, $119 was paid to Qualified Recipients with
respect to Class C Shares of which the Distributor received $119.
Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses which
might be considered to be sales-related which the Fund pays or may
pay come within the purview of the Rule. The Fund believes that
except for Permitted Payments it is not financing any such activity
and does not consider any payment enumerated in this part of the
Plan as so financing any such activity. However, it might be
claimed that some of the expenses the Fund pays come within the
purview of the Rule. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. (See the Additional Statement.)
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent, and
may not exceed, for any fiscal year of the Fund (as adjusted for
any part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.25 of 1% of the average annual net assets
represented by the Class C Shares of the Fund. Such payments shall
be made only out of the Fund's assets represented by the Class C
Shares. "Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements and which have
agreed to provide personal services to holders of Class C Shares
and/or maintenance of Class C Shares shareholder accounts. (See the
Additional Statement.) Service Fees with respect to Class C Shares
will be paid to the Distributor. During the fiscal year ended June
30, 1997, payments of $40 were made under this Plan to the
Distributor.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net asset
value next determined after acceptance of your redemption request
at the Agent (subject to any applicable contingent deferred sales
charge for redemptions of Class C Shares and CDSC Class A Shares).
For redemptions of Class C Shares and CDSC Class A Shares, at the
time of redemption a sufficient number of additional shares will be
redeemed to pay for any applicable contingent deferred sales
charge. Redemptions can be made by the various methods described
below. There is no minimum period for any investment in the Fund,
except for shares recently purchased by check, Automatic Investment
or Telephone Investment as discussed below. Except for CDSC Class
A Shares (see "Purchase of $1 Million or More") there are no
redemption fees or withdrawal penalties for Class A Shares. Class
C Shares are subject to a contingent deferred sales charge if
redeemed before they have been held 12 months from the date of
purchase. (See "Alternative Purchase Plans.") A redemption may
result in a transaction taxable to you. If you own both Class A
Shares and Class C Shares and do not specify which you wish to
redeem, it will be assumed that you wish to redeem Class A Shares.
For your convenience the Fund offers expedited redemption for
all classes of shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
For your convenience the Fund offers expedited redemption for
to provide you with a high level of liquidity for your investment.
You have the flexibility of two expedited methods of initiating
redemptions. They are available as to shares not represented by
certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have predesignated
or
b) by check in the amount of $50,000 or less, mailed to you,
if your shares are registered in your name at the Fund and the
check is sent to your address of record, provided that there
has not been a change of your address of record during the 30
days preceding your redemption request. You can make only one
request for telephone redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption payments to
a predesignated Financial Institution account by a letter of
instruction sent after November 8, 1997 to: PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809. Before November 8, 1997 send your
letter of instructions to Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, by FAX at 732-855-5730 or by mail at
581 Main Street, Woodbridge, NJ 07095-1198. The letter must provide
account name(s), account number, amount to be redeemed, and any
payment directions and be signed by the registered holder(s).
Signature guarantees are not required. See "Redemption Payments",
below for payment methods.
If you wish to have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the Fund. You may change the designated Financial Institution
account at any time by completing and returning a Ready Access
Features form. For protection of your assets, this form requires
signature guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing Class A
Shares to be redeemed with payment instructions should be sent
(after November 8, 1997) in blank (unsigned) to the Fund's
Shareholder Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. Before November 8, 1997 send your
certificates to Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ. A stock
assignment form signed by the registered shareholder(s) exactly as
the account is registered must also be sent to the Shareholder
Servicing Agent.
For your own protection, it is essential that certificates be
mailed separately from signed redemption documentation. Because of
possible mail problems, it is also recommended that certificates be
sent by registered mail, return receipt requested.
For a redemption request to be in "proper form," the signature
or signatures must be the same as in the registration of the
account. In a joint account, the signatures of both shareholders
are necessary. Signature guarantees may be required if sufficient
documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature guarantor.
2. Non-Certificate Shares. If you own non-certificate shares
registered on the books of the Fund, and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under this
redemption method you should send a letter of instruction (after
November 8, 1997) to the Fund's Shareholder Servicing Agent: PFPC
Inc., 400 Bellevue Parkway, Wilmington, DE 19809. Before November
8, 1997 send your letter to Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ
07095-1198. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will, wherever
possible, be wired or transferred through the facilities of the
Automated Clearing House to the Financial Institution account
specified in the Expedited Redemption section of your Application
or Ready Access Features form. The Fund may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Fund
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Fund may modify or terminate
the use of the Automated Clearing House to make redemption payments
at any time or charge a service fee, although no such fee is
presently contemplated. If any such changes are made, the
Prospectus will be supplemented to reflect them. If you use a
broker or dealer to arrange for a redemption, you may be charged a
fee for this service.
The Fund will normally make payment for all shares redeemed on
the next business day (see "Net Asset Value Per Share") following
acceptance of the redemption request made in compliance with one of
the redemption methods specified above. Except as set forth below,
in no event will payment be made more than seven days after
acceptance of such a redemption request. However, the right of
redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or determination of the net asset value
of, the portfolio securities to be unreasonable or impracticable;
or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of shares recently
purchased by check (irrespective of whether the check is a regular
check or a certified, cashier's or official bank check) or by
Automatic Investment or Telephone Investment may be delayed up to
15 days or until (i) the purchase check or Automatic Investment or
Telephone Investment has been honored or (ii) the Agent has
received assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from which
the funds for Automatic Investment or Telephone Investment were
transferred, satisfactory to the Agent and the Fund, that the
purchase check or Automatic Investment or Telephone Investment will
be honored. Possible delays in payment of redemption proceeds can
be eliminated by using wire payments or Federal Reserve drafts to
pay for purchases.
If the Trustees determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make
payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. (See
the Additional Statement for details.)
The Fund has the right to compel the redemption of shares held
in any account if the aggregate net asset value of such shares is
less than $500 as a result of shareholder redemptions or failure to
meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of a
redemption of shares in shares of the Fund of the same class as the
shares redeemed at the net asset value next determined after the
Agent receives your reinvestment order. In the case of Class C
Shares or CDSC Class A Shares on which a contingent deferred sales
charge was deducted at the time of redemption, the Distributor will
refund to you the amount of such sales charge, which will be added
to the amount of the reinvestment. The Class C Shares or CDSC Class
A Shares issued on reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed
shares, less the period from redemption to reinvestment. The
reinvestment privilege for any class may be exercised only once a
year, unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the redemption
transaction is taxable, and reinvestment will not alter any capital
gains tax payable. If there has been a loss on the redemption, some
or all of the loss may be tax deductible, depending on the amount
reinvested and the length of time between the redemption and the
reinvestment. You should consult your own tax advisor on this
matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares of the Fund having a net asset value of at
least $5,000. The Automatic Withdrawal Plan is not available for
Class C Shares.
Under an Automatic Withdrawal Plan you will receive a monthly
or quarterly check in a stated amount, not less than $50. If such
a plan is established, all dividends and distributions must be
reinvested in your shareholder account. Redemption of Class A
Shares to make payments under the Automatic Withdrawal Plan will
give rise to a gain or loss for tax purposes. (See the Automatic
Withdrawal Plan provisions of the Application included in the
Prospectus, the Additional Statement under "Automatic Withdrawal
Plan," and "Dividend and Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when purchases
are made. Accordingly, you may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases of Class A
Shares. While an occasional lump sum investment may be made, such
investment should normally be an amount at least equal to three
times the annual withdrawal or $5,000, whichever is less.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
Change in Management Arrangements
On October 24, 1997, the management arrangements described
below were approved by the Fund's shareholders and went into
effect. The new arrangements are designed to change the form of the
Fund's investment advisory and administration arrangements to a new
structure involving an adviser and a sub-adviser. The proposed
arrangements do not result in any change in overall management fees
paid by the Fund, nor any change in the parties providing these
services. Marketing efforts and positioning of the Fund will remain
the same with a strong local niche orientation.
Under the new arrangements, Aquila Management Corporation
("Aquila"), which since inception of the Fund has served as the
Fund's administrator, in addition became investment adviser under
a new agreement (the "Advisory and Administration Agreement") under
which it also continues to provide the Fund with all administrative
services. Also, by adoption of a Sub-Advisory Agreement between
Aquila and First Security Investment Management, Inc. (the
"Sub-Adviser"), the former investment advisory agreement was
replaced by one under which Aquila appointed the Sub-Adviser as
Sub-Adviser to the Fund. Under the Sub-Advisory Agreement, the
Sub-Adviser will continue to provide the Fund with advisory
services of the kind which it formerly provided as adviser. The
duties of the administrator, previously performed under an
administration agreement, are now performed by Aquila under the
Advisory and Administration Agreement where Aquila is referred to
as the "Manager." The former administration agreement terminated
upon approval of the new agreements.
The Advisory and Administration Agreement
The Advisory and Administration Agreement between the Fund and
Aquila Management Corporation (the "Manager") has several parts,
most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration Agreement
contains provisions relating to investment advice for the Fund and
management of its portfolio that are substantially identical to
prior advisory agreements, except that the Manager has the power to
delegate its advisory functions to a sub-adviser, which it will
employ at its own expense. It has delegated these duties to the
Sub-Adviser. The Advisory and Administration Agreement contains
provisions relating to administrative services that are
substantially identical to those contained in the Fund's current
administration agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the Fund
and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities held
in the portfolio of the Fund; and
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of pricing
information satisfactory to the Fund and, unless otherwise directed
by the Board of Trustees, provide for pricing of the Fund's
portfolio at least quarterly using another such source satisfactory
to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the Manager
may at its own expense delegate to a qualified organization (the
"Sub-Adviser"), affiliated or not affiliated with the Manager, any
or all of the above duties. Any such delegation of the duties set
forth in (i), (ii) or (iii) above shall be by a written agreement
(the "Sub-Advisory Agreement") approved as provided in Section 15
of the Investment Company Act of 1940. The Manager has delegated
all of such functions to the Sub-Adviser in the Sub-Advisory
Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall provide all administrative services to
the Fund other than those relating to its investment portfolio
which have been delegated to a Sub-Adviser of the Fund under the
Sub-Advisory Agreement; as part of such administrative duties, the
Manager shall:
(i) provide office space, personnel, facilities and equipment
for the performance of the following functions and for the
maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation of agreements in
relation thereto, the supervision and coordination of the
performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for the
effective operation of the Fund and for the sale, servicing or
redemption of the Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and the
dividends (provided that if there is a Sub-Adviser, daily pricing
of the Fund's portfolio shall be the responsibility of the
Sub-Adviser under the Sub-Advisory Agreement) or, at its expense
and responsibility, delegate such duties in whole or in part to a
company satisfactory to the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all required
proxy statements, reports to the Fund's shareholders and Trustees,
reports to and other filings with the Securities and Exchange
Commission and any other governmental agencies, and tax returns,
and oversee the insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's expense,
such applications and reports as may be necessary to register or
maintain the registration of the Fund and/or its shares under the
securities or "Blue-Sky" laws of all such jurisdictions as may be
required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund and broker-dealers, or if any such inquiry
or communication is more properly to be responded to by the Fund's
shareholder servicing and transfer agent or distributor, oversee
such shareholder servicing and transfer agent's or distributor's
response thereto.
The Advisory and Administration Agreement contains provisions
relating to compliance of the investment program, responsibility of
the Manager for any investment program managed by it, allocation of
brokerage, and responsibility for errors that are substantially the
same as the corresponding provisions in the Sub-Advisory Agreement.
(See the Additional Statement.)
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, pay all compensation of
Trustees, officers, and employees of the Fund who are affiliated
persons of the Manager.
The Fund bears the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to
its shareholders, and the costs of printing or otherwise producing
and distributing those copies of such prospectuses, statements of
additional information and reports as are sent to its shareholders.
All costs and expenses not expressly assumed by the Manager under
this sub-section or otherwise by the Manager, administrator or
principal underwriter or by any Sub-Adviser shall be paid by the
Fund, including, but not limited to (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv) compensation
and expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent, or
shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and (xi)
such non-recurring expenses as may arise, including litigation
affecting the Fund and the legal obligations for which the Fund may
have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that the
Fund agrees to pay the Manager, and the Manager agrees to accept as
full compensation for all services rendered by the Manager as such,
an annual fee payable monthly and computed on the net asset value
of the Fund as of the close of business each business day at the
annual rate of 0.50 of 1% of such net asset value.
The Advisory and Administration Agreement provides that the
Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the Manager
agrees not to terminate the Sub-Advisory Agreement except in
accordance with such authorization and direction of the Board of
Trustees, if any, as may be in effect from time to time. The
Advisory and Administration Agreement provides that it may be
terminated by the Manager at any time without penalty upon giving
the Fund sixty days' written notice (which notice may be waived by
the Fund) and may be terminated by the Fund at any time without
penalty upon giving the Manager sixty days' written notice (which
notice may be waived by the Manager), provided that such
termination by the Fund shall be directed or approved by a vote of
a majority of its Trustees in office at the time or by a vote of
the holders of a majority (as defined in the Act) of the voting
securities of the Fund outstanding and entitled to vote. The
specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically terminate
in the event of the assignment (as defined in the Act) of the
Advisory Agreement, but all other provisions relating to providing
services other than investment advisory services will not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.27 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser;
which provides, subject to the control of the Board of Trustees,
for investment supervision and at the Sub-Adviser's expense for
pricing of the Fund's portfolio daily using a pricing service or
other source of pricing information satisfactory to the Fund and,
unless otherwise directed by the Board of Trustees, for pricing of
the Fund's portfolio at least quarterly using another such source
satisfactory to the Fund. The Sub-Advisory Agreement states that
the Sub-Adviser shall, at its expense, provide to the Fund all
office space and facilities, equipment and clerical personnel
necessary for the carrying out of the Sub-Adviser's duties under
the Sub-Advisory Agreement.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager agrees to pay
the Sub-Adviser, and the Sub-Adviser agrees to accept as full
compensation for all services rendered by the Sub-Adviser as such,
a management fee payable monthly and computed on the net asset
value of the Fund as of the close of business each business day at
the annual rates of 0.23 of 1% of such net asset value. The
Sub-Adviser and/or the Manager may, in order to attempt to achieve
a competitive yield on the shares of the Fund, each waive all or
part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-Adviser is
authorized to consider sales of shares of the Fund or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the Fund.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser, First Security Investment Management, Inc.,
was incorporated in August 1984 and is a subsidiary of First
Security Investment Services, Inc., which in turn is a wholly-owned
subsidiary of First Security Corporation, a Utah-headquartered
financial services organization with consolidated assets of $13.1
billion as of August 31, 1997. In addition to advising the Fund,
the Sub-Adviser's advisory experience includes the management of
The Achievement Family of Funds, funds unrelated to the Fund and
the provision of investment management services to banks and thrift
institutions, corporate and profit-sharing trusts, Taft-Hartley,
municipal and state retirement funds, charitable foundations,
endowments and individual investors throughout the United States.
The Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Adviser has
offices at 61 South Main Street, Salt Lake City, Utah 84111, 119
North 9th Street, Boise, Idaho 83730, 219 Central Avenue, N.W.,
Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard, Las
Vegas Nevada 89101.
First Security Bank of Utah, N.A., an affiliate of the Sub-
Adviser, is the largest bank in the State of Utah and one of the
largest banks in the Rocky Mountain region. The Sub-Adviser is not
permitted to purchase the securities of or enter into principal
transactions with any of its affiliates, including First Security
Bank of Utah, when acting on behalf of the Fund. The above
restriction does not apply, however, to securities issued or
underwritten by banks or other financial institutions which are not
themselves affiliates of the Sub-Adviser, although they may have a
correspondent banking or other business relationship with one or
more of the First Security banks. (See below and in the Additional
Statement as to the legality, under the Glass-Steagall Act, of the
Sub-Adviser's acting as the Fund's investment adviser.) In general,
under that Act, the Sub-Adviser will not, among other things, be
involved in the promotion or distribution of shares of the Fund.
Sterling K. Jenson has managed the Fund's portfolio since
commencement of the Fund's operations in July, 1992. Mr. Jenson is
President, Chief Executive Officer and Senior Portfolio Manager
with the Sub-Adviser and has been employed in the investment
management business for over 19 years. He is a member of the
Association for Investment Management and Research (AIMR) and has
earned the professional designations Chartered Financial Analyst
(CFA) and Chartered Investment Counselor (CIC). He received his
B.S. degree (Economics) and M.B.A. degree from Brigham Young
University.
The Fund's Manager is founder of and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal bond
funds, money market funds and two equity funds. As of June 30,
1997, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets of
the tax-free municipal bond funds. The Manager, which was founded
in 1984, is controlled by Mr. Lacy B. Herrmann (directly, through
a trust and through share ownership by his wife). (See the
Additional Statement for information on Mr. Herrmann.)
During the fiscal year ended June 30, 1997, fees of $67,588
and $79,323, respectively, were accrued to the Sub-Adviser and
Manager under the former advisory and administration agreements
then in effect. Of these amounts, the Sub-Adviser and Manager
waived $55,749 and $72,207, respectively. In addition, during that
period the Manager agreed to reimburse the Fund for other expenses
during this period in the amount of $199,119 of which $66,512 was
paid prior to June 30, 1997 and the balance of $132,607 was paid in
July and early August of 1997.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds, five
money market funds and two equity funds), including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of the Prospectus, there is a proposed transaction
whereby all of the shares of the Distributor, which are currently
owned 75% by Mr. Herrmann and 25% by Diana P. Herrmann, will be
owned by certain directors and/or officers of the Manager and/or
the Distributor, including Mr. Herrmann and Ms. Herrmann.
Authority to Act as Investment Sub-Adviser
Banking laws and regulations, including the Glass-Steagall Act
as currently interpreted by the Board of Governors of the Federal
Reserve System, prohibit a bank holding company registered under
the Bank Holding Company Act of 1956 or any affiliate thereof from
sponsoring, organizing, controlling or distributing the shares of
a registered, open-end investment company continuously engaged in
the issuance of its shares, and prohibit banks generally from
issuing, underwriting, selling or distributing securities, but do
not prohibit such a bank holding company or affiliate from acting
as investment adviser, transfer agent or custodian to such an
investment adviser, or from purchasing shares of such a company as
agent for and upon the order of a customer. The Sub-Adviser and the
Fund believe that the Sub-Adviser may perform the advisory services
for the Fund described in the Prospectus. However, future changes
in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of
present requirements, could prevent the Sub-Adviser from continuing
to perform investment advisory services for the Fund.
If the Sub-Adviser were prohibited from performing investment
advisory services for the Fund, it is expected that the Board of
Trustees of the Fund would recommend to the Fund's shareholders
that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined below,
as dividends on every day, including weekends and holidays, on
those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Fund's dividends will also vary. The
per-share dividends of Class C Shares will be lower than the per
share dividends on the Class A Shares as a result of the higher
service and distribution fees applicable to those shares. In
addition, the dividends of each class can vary because each class
will bear certain class-specific charges. Dividends and other
distributions paid by the Fund with respect to each class of its
shares are calculated at the same time and in the same manner.
It is the Fund's present policy to pay dividends so that they
will be received or credited by approximately the first day of each
month. On the Application or by completing a Ready Access Features
form, you may elect to have dividends deposited without charge by
electronic funds transfers into your account at a Financial
Institution if it is a member of the Automated Clearing House.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined (see "How To
Redeem Your Investment").
Net investment income includes amounts of income from the Utah
Double-Exempt Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small portion
of the dividends paid by the Fund will be subject to income taxes.
During the Fund's fiscal year ended June 30, 1997, 97.89% of the
Fund's dividends were "exempt-interest dividends." For the calendar
year 1996, 1.88% of the total dividends paid were taxable as
ordinary income. The percentage of income designated as tax-exempt
for any particular dividend may be different from the percentage of
the Fund's income that was tax-exempt during the period covered by
the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as
"exempt-interest dividends," if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the Agent
or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Tax Information
The Fund has qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as dividends
and distributions. However, the Code contains a number of complex
tests relating to such qualification and it is possible although
not likely that the Fund might not meet one or more of these tests
in any particular year. If it does not so qualify, it would be
treated for tax purposes as an ordinary corporation, would receive
no tax deduction for payments made to shareholders and would be
unable to pay dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Fund intends to qualify during each fiscal year under the
Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Utah Double-Exempt Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends" are
not taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Fund)
received or acquired during the year.
The Code requires that either gains realized by the Fund on
the sale of municipal obligations acquired after April 30, 1993 at
a price which is less than face or redemption value be included as
ordinary income to the extent such gains do not exceed such
discount or that the discount be amortized and included ratably in
taxable income. There is an exception to the foregoing treatment if
the amount of the discount is less than 0.25% of face or redemption
value multiplied by the number of years from acquisition to
maturity. The Fund will report such ordinary income in the years of
sale or redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as ordinary
income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as gain from the sale or exchange of a
capital asset held for more than one year. This is the case whether
the shareholder takes the distribution in cash or elects to have
the distribution reinvested in Fund shares and regardless of the
length of time the shareholder has held his or her shares.
Short-term gains, when distributed, are taxed to shareholders
as ordinary income. Capital losses of the Fund are not distributed
but carried forward by the Fund to offset gains in later years and
thereby lessen the later-year capital gains dividends and amounts
taxed to shareholders.
The Fund's gains or losses on sales of Utah Double-Exempt
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders to
enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under rules
used by the Internal Revenue Service for determining when borrowed
funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Utah Double-Exempt Obligations is
tax-exempt for purposes of computing the shareholder's regular tax,
interest from so-called private activity bonds issued after August
7, 1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the taxpayer's
return. The Fund will not invest in the types of Utah Double-Exempt
Obligations which would give rise to interest that would be subject
to alternative minimum taxation if more than 20% of its net assets
would be so invested, and may refrain from investing in that type
of bond completely. The 20% limit is a fundamental policy of the
Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Your gain or loss will be long-term if you held
the redeemed shares for over 18 months, mid-term if you held the
redeemed shares for over one year but not more than 18 months and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20%, mid-term capital gains
are currently taxed at a maximum rate of 28%, and short-term gains
are currently taxed at ordinary income tax rates. However, if
shares held for six months or less are redeemed and you have a
loss, two special rules apply: the loss is reduced by the amount of
exempt-interest dividends, if any, which you received on the
redeemed shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the
extent you have received capital gains dividends on the redeemed
shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted tax
basis in the Class C Shares held immediately before the conversion;
and each shareholder's holding period for the Class A Shares
received upon conversion will include the period for which the
shareholder held as capital assets the converted Class C Shares
immediately before conversion.
Utah Tax Information
Distributions of interest income made by the Fund from Utah
Double-Exempt Obligations will generally be treated for purposes of
the Utah Individual Income Tax Act in the same manner as they are
treated under the Internal Revenue Code for Federal income tax
purposes. (See the prior discussion under "Dividend and Tax
Information.") Individual shareholders of the Fund generally will
not be subject to Utah income tax on distributions received from
the Fund to the extent such distributions are attributable to
interest income on Utah Double-Exempt Obligations. Certain
subtractions relating to retirement income received by shareholders
under the age of 65 and the exemption allowed to individuals over
the age of 65 may be reduced because the receipt of exempt-interest
dividends from the Fund will be added to federal adjusted gross
income for purposes of calculating the income of individuals for
Utah income tax purposes. Other distributions from the Fund,
including capital gains dividends, will generally not be exempt
from Utah income tax.
For corporate investors, distributions of interest income from
Utah Double-Exempt Obligations are not exempt from the Utah
corporate franchise and income tax, although a credit against the
corporate franchise and income tax is available with respect to a
portion of the interest income from obligations issued by the State
of Utah, its agencies and instrumentalities and its political
subdivisions. Prior to January 1, 1993 the credit is generally
equal to 2.5% of the gross interest income from such Utah
obligations. From and after January 1, 1993, the credit is
generally equal to 1% of the gross interest income from such Utah
obligations. The Utah corporate franchise or income tax applies to
every state or national bank or corporation, with certain
exceptions specifically enumerated by Utah law.
Shares of the Fund will not be subject to the Utah property
tax.
You should consult your tax advisor concerning the specific
state and local tax consequences from your investment in the Fund.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila-sponsored Bond and Equity Funds are this
Fund, Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity
Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free
Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund
of Kentucky, and Narragansett Insured Tax-Free Income Fund; the
Aquila Money-Market Funds are Capital Cash Management Trust,
Pacific Capital Cash Assets Trust (Original Shares), Pacific
Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Treasuries Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Generally, you can exchange shares of a given class of a Bond
or Equity Fund including the Fund for shares of the same class of
any other Bond or Equity Fund, or for shares of any Money Market
Fund, without the payment of a sales charge or any other fee, and
there is no limit on the number of exchanges you can make from fund
to fund. However, the following important information should be
noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares of the following categories, no
CDSC will be imposed at the time of exchange, but the shares you
receive in exchange for them will be subject to the applicable CDSC
if you redeem them before the requisite holding period (extended,
if required) has expired:
- CDSC Class A Shares (See "Purchase of $1 Million or
More");
- Class C Shares: and
- Shares of a Money Market Fund that were received in
exchange for CDSC Class A Shares or Class C Shares.
If the shares you redeem would have incurred a CDSC if you had
not made any exchanges, then the same CDSC will be imposed upon the
redemption regardless the exchanges that have taken place since the
original purchase.
(2) Extension of Holding Periods by owning Money-Market Funds
Any period of 30 days or more during which Money-Market shares
received on an exchange of CDSC Class A Shares or Class C Shares
are held is not counted in computing the applicable holding period
for CDSC Class A Shares or Class C Shares.
(3) Originally purchased Money Market Fund shares. Shares of
a Money Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money Market
Fund Shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they been
purchased rather than acquired in exchange for Money Market Fund
shares. If the shares received in exchange are shares that would be
subject to a CDSC if purchased directly, the holding period
governing the CDSC will run from the date of the exchange, not from
the date of the purchase of Money Market Shares.
This Fund, as well as the Money-Market Funds and other Bond or
Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange is at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges will be effected at the relative exchange prices of
the shares being exchanged next determined after receipt by the
Agent of your exchange request. The exchange prices will be the
respective net asset values of the shares, unless a sales charge is
to be deducted in connection with an exchange of shares, in which
case the exchange price of shares of a Bond or Equity Fund will be
their public offering price. Prices for exchanges are determined in
the same manner as for purchases of the Fund's shares. (See "How to
Invest in the Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market fund) are exempt from regular Federal income tax, and
to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests in
U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund and Aquila
Cascadia Equity Fund are taxable. If your state of residence is not
the same as that of the issuers of obligations in which a tax-free
municipal bond fund or a tax-free money-market fund invests, the
dividends from that fund may be subject to income tax of the state
in which you reside. Accordingly, you should consult your tax
adviser before acquiring shares of such a bond fund or a tax-free
money-market fund under the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1- and 5-year periods and for a period
since the inception of the Fund, to the extent applicable, through
the end of such periods, assuming reinvestment (without sales
charge) of all distributions. The Fund may also furnish total
return quotations for other periods or based on investments at
various applicable sales charge levels or at net asset value. For
such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. (See the Additional Statement.)
Current yield reflects the income per share earned by each of
the Fund's portfolio investments; it is calculated by (i) dividing
the Fund's net investment income per share during a recent 30-day
period by (ii) the maximum public offering price on the last day of
that period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Fund, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Fund's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Fund's yield. (See
the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Fund's distribution rate (calculated as indicated above). The
current distribution rate differs from the current yield
computation because it could include distributions to shareholders
from sources, if any, other than dividends and interest, such as
short-term capital gains or return of capital. If distribution
rates are quoted in advertising, they will be accompanied by
calculations of current yield in accordance with the formula of the
Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge ,if
any, on the purchase of shares, but not on reinvestment of income
dividends. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management investment
company organized in December, 1990 as a Massachusetts business
trust. (See the sixth paragraph under "Investment of the Fund's
Assets" for further information about the Fund's status as
"non-diversified.") The Fund began operations in July, 1992.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in
the Fund. Each share represents an equal proportionate interest in
the Fund with each other share of its class; shares of the
respective classes represent proportionate interests in the Fund in
accordance with their respective net asset values. Income, direct
liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and
expenses, if any, of the Fund will be allocated among the series in
a manner acceptable to the Board of Trustees. Upon liquidation of
a series, shareholders of the series are entitled to share pro-rata
in the net assets of that series available for distribution to
shareholders and upon liquidation of the Fund, the respective
series are entitled to share proportionately in the assets
available to the Fund after allocation to the various series.
Shareholders of each series or class are entitled to share pro-rata
in the net assets of the Fund available for distribution to
shareholders, in accordance with the respective net asset values of
the shares of that series or class at that time. The Fund currently
has only one series of shares. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares, which may differ from each
other as provided in rules and regulations of the Securities and
Exchange Commission or by exemptive order. The Board of Trustees
may, at its own discretion, create additional series of shares,
each of which may have separate assets and liabilities (in which
case any such series will have a designation including the word
"Series"). (See the Additional Statement for further information
about possible additional series.) Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights.
In addition to Class A Shares and Class C Shares, which are
offered by this Prospectus, the Fund also has (i) Institutional
Class Shares ("Class Y Shares"), which are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity and are not offered directly to
retail customers and (ii) Financial Intermediary Class Shares
("Class I Shares"), which are offered and sold only through certain
financial intermediaries. Class Y Shares and Class I Shares are
offered by a separate prospectus, which can be obtained by calling
the Fund at 800-882-4937.
The primary distinction among the Fund's classes of shares
lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All three classes
represent interests in the same portfolio of Utah Obligations and
have the same rights, except that each class bears the separate
expenses, if any, of its participation in the Distribution Plan and
Shareholder Services Plan and has exclusive voting rights with
respect to such participation.
See the notes to the Statement of Assets and Liabilities in
the annual report for information as to the amortization of the
Fund's organizational and start-up expenses. A copy of the
financial statements contained in the annual report is incorporated
by reference into the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund,
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND FOR UTAH
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
After November 8, 1997: PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
Before November 8, 1997: ADM, ATTN: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198 Tel.# 1-800-446-8824
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate Class of Shares)
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
Indicate Method of Payment (For either method, make check payment to
TAX-FREE FUND FOR UTAH)
__ Initial Investment $______________ (Minimum $1,000)
__ Automatic Investment $______________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and attached a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be: ___ Reinvested ___ Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Fund For Utah Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-446-8824. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application.
___ Yes ___ No
I/We intend to invest in Class A Shares of the Fund during the
13-month period from the date of my/our first purchase pursuant to
this Letter (which purchase cannot be more than 90 days prior to the
date of this Letter), an aggregate amount (excluding any reinvestment
of dividends or distributions) of at least $25,000 which, together with
my/our present holdings of Fund shares (at public offering price on date
of this Letter), will equal or exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
D. AUTOMATIC WITHDRAWAL PLAN
APPLICABLE TO CLASS A SHARES ONLY.
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to
1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, the Fund's Shareholder
Servicing Agent (the "Agent") is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning______________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
________________________________________ ___________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ____________________________________
Street Financial Institution Street Address
_______________________________ ____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this Fund
account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ _____________________________________
Account Registration Financial Institution Account Number
_______________________________ _____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ _____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number __________________________________
Name and Address where my/our account is maintained
Name of Financial Institution__________________________________________
Street Address_________________________________________________________
City_______________________________State _________________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except any
loss due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing
of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay
any such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any
deficiency resulting from any decline in the net asset value of shares
so purchased and any dividends paid on those shares. I/We authorize the
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity of
the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number is
shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no such
Number has been issued, and a Number has been or will soon be applied
for; if a Number is not provided to you within sixty days, the
undersigned understands that all payments (including liquidations) are
subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ __________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ __________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-882-4937 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c and signing the Application, the investor is
entitled to make each purchase at the public offering price applicable
to a single transaction of the dollar amount checked above, and agrees
to be bound by the terms and conditions applicable to Letters of Intent
appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the
investor's first purchase do not aggregate $25,000, or, if such purchases
added to the investor's present holdings do not aggregate the minimum
amount specified above, the investor will pay the increased amount of
sales charge prescribed in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be
at the rate applicable to the minimum amount of the investor's specified
intended purchases checked above. If the investor's actual purchases do
not reach this minimum amount, the commissions previously paid to the
dealer will be adjusted to the rate applicable to the investor's total
purchases. If the investor's purchases exceed the dollar amount of the
investor's intended purchases and pass the next commission break-point,
the investor shall receive the lower sales charge, provided that the
dealer returns to the Distributor the excess of commissions previously
allowed or paid to him over that which would be applicable to the amount
of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent
in placing any future purchase orders for the investor while this Letter
is in effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent (computed to the
nearest full share) shall be held in escrow in shares of the Fund by
the Agent. All dividends and any capital distributions on the escrowed
shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be
deducted from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchases, the
investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount
of sales charges which would have been paid if the total amount
purchased had been made at a single time. If such difference in sales
charges is not paid within twenty days after receipt of a request from
the Distributor or the dealer, the Distributor will, within sixty days
after the expiration of the Letter, redeem the number of escrowed
shares necessary to realize such difference in sales charges. Full
shares and any cash proceeds for a fractional share remaining after
such redemption will be released to the investor. The escrow of shares
will not be released until any additional sales charge due has been
paid as stated in this section.
4. By checking Box 3c and signing the Application, the investor
irrevocably constitutes and appoints the Agent or the Distributor as
his attorney to surrender for redemption any or all escrowed shares
on the books of the Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Fund. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................5
Financial Highlights.............................7
Introduction.....................................8
Investment Of The Fund's Assets..................8
Investment Restrictions.........................13
Net Asset Value Per Share.......................13
Alternative Purchase Plans......................14
How To Invest In The Fund.......................16
How To Redeem Your Investment...................23
Automatic Withdrawal Plan.......................27
Management Arrangements.........................27
Dividend And Tax Information....................30
Exchange Privilege..............................34
General Information.............................37
Application and Letter of Intent
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
PROSPECTUS
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
<PAGE>
TAX-FREE FUND FOR UTAH
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Prospectus
Class Y Shares
Class I Shares
October 31, 1997
The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Utah and
regular Federal income taxes as is consistent with preservation of
capital by investing principally in municipal obligations of Utah
issuers which pay interest exempt from Utah State and Federal
income taxes. These municipal obligations must, at the time of
purchase, either be rated within the four highest credit ratings
(considered as investment grade) assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or, if unrated, be
determined to be of comparable quality to municipal obligations so
rated by the Fund's Sub-Adviser, First Security Investment
Management, Inc.
The Fund is intended as an investment through which Utah
investors can participate in the financing of various Utah-oriented
public purpose projects which assist in the economic development of
the State and the quality of life of its residents. While the Fund
will seek to have 100% of its assets invested in tax-free municipal
obligations of Utah issuers, it may invest up to 35% of the Fund's
assets in tax-free municipal obligations of issuers of other
states.
The Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund dated October 31, 1997 (the "Additional
Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to
the Fund's Shareholder Servicing Agent, at the address given below,
or by calling the telephone number(s) given below. The Additional
Statement contains information about the Fund and its management
not included in the Prospectus. The Additional Statement is
incorporated by reference in its entirety in the Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the Fund available to you.
SHARES OF THE FUND ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY FIRST SECURITY INVESTMENT MANAGEMENT,
INC., FIRST SECURITY BANK OF UTAH, N.A., OR ITS BANK OR NON-BANK
AFFILIATES OR BY ANY OTHER BANK. SHARES OF THE FUND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR
GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
For Purchase, Redemption or Account inquiries contact the
Fund's Shareholder Servicing Agent: after November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Call 800-446-8824 toll free
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street, Woodbridge, NJ 07095-1198
Call 800-446-8824 toll free or 732-855-5731
For General Inquiries & Yield Information,
Call 800-882-4937 toll free or 212-697-6666
The Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Fund For Utah (the "Fund"), founded by Aquila
Management Corporation (the "Manager") in 1992 and one of the
Aquilasm Group of Funds, is an open-end, non-diversified management
investment company (a "mutual fund") which invests in tax-free
municipal bonds, principally obligations issued by the State of
Utah, its counties and various other local authorities to finance
such long-term projects as schools, roads, hospitals and water
facilities throughout Utah or to finance short-term needs. (See
"Introduction.")
Tax-Free Income - The municipal obligations in which the Fund
invests pay interest which is exempt from both regular Federal
income taxes and State of Utah income taxes (except Utah income tax
on corporations). Dividends paid by the Fund from this income are
likewise free of both such taxes. It is, however, possible that in
certain circumstances a small portion of the dividends paid by the
Fund will be subject to income taxes. The Federal alternative
minimum tax may apply to some investors, but its impact will be
limited since not more than 20% of the Fund's net assets can be
invested in obligations paying interest which is subject to this
tax. The receipt of exempt-interest dividends from the Fund may
result in some portion of social security payments or railroad
retirement benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Fund will acquire only those municipal
obligations which, at the time of purchase, are within the four
highest credit ratings assigned by Moody's Investors Service, Inc.
or Standard & Poor's Corporation, or are determined to be of
comparable quality by the Fund's Sub-Adviser, First Security
Investment Management, Inc. In general, there are nine separate
credit ratings, ranging from the highest to the lowest credit
ratings for municipal obligations. Obligations within the top four
ratings are considered "investment grade," but those in the fourth
rating may have speculative characteristics as well. (See
"Investment of the Fund's Assets.")
Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and Its Shares.") For
this purpose the Fund offers classes of shares, which differ in
their expense levels and sales charges. This Prospectus offers:
Institutional Class Shares ("Class Y Shares") are offered only
to institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, and are not offered
directly to retail customers. Class Y Shares are offered at
net asset value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution fee. (See
"How to Purchase Class Y Shares.")
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly to
retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a services fee of 0.25 of 1% of such
assets. (See "How to Purchase Class I Shares.")
The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are not
offered by this Prospectus. (See "Description of the Fund and Its
Shares.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How to
Invest in the Fund.") If Class Y Shares or Class I Shares of the
Fund are sold outside those states, except to certain institutional
investors, the Fund can redeem them. If your state of residence is
not Utah, dividends from the Fund may be subject to income taxes of
the state in which you reside. Accordingly, you should consult your
tax adviser before acquiring shares of the Fund.
Initial Investment - - You may open your account for Class Y
Shares with any purchase of $100,000 or more for fiduciary accounts
and $250,000 for all other eligible purchasers. These minimums do
not apply to shareholders with accounts open on October 31, 1997.
(See the Application, which is in the back of the Prospectus.)
Class I Shares are sold only through financial intermediaries,
which may have their own minimum investment requirement. (See "How
to Invest in the Fund.")
Additional Investments - - You may make additional investments
in Class Y Shares at any time and in any amount, directly or, if in
an amount of $50 or more, through the convenience of having your
investment electronically transferred from your financial
institution account into the Fund by Automatic Investment or
Telephone Investment. Additional investments in Class I Shares can
be made only through financial intermediaries, which may have their
own requirements for subsequent investments. (See "How to Invest in
the Fund.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares are paid by
check mailed to you, directly deposited into your financial
institution account or automatically reinvested without sales
charge in additional Class Y Shares at the then-current net asset
value. All arrangements for the payment of dividends with respect
to Class I Shares, including reinvestment of dividends, must be
made through financial intermediaries. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a portfolio
which consists of over 70 issues with different maturities. (See
"Investment of the Fund's Assets.")
Local Portfolio Management - Fee Arrangements - First Security
Investment Management, Inc. of Salt Lake City, Utah, serves as the
Fund's Investment Sub-Adviser, providing experienced local
professional management. The Sub-Adviser was incorporated in 1984
and is a subsidiary of First Security Investment Services, Inc.,
which in turn is a wholly-owned subsidiary of First Security
Corporation, a Utah-headquartered financial services organization
with consolidated assets of $13.1 billion as of August 31, 1997. In
addition to advising the Fund, First Security's advisory experience
includes the management of The Achievement Family of Funds, funds
unrelated to the Fund, and the provision of investment management
services to banks and thrift institutions, corporate and
profit-sharing trusts, Taft-Hartley, municipal and state retirement
funds, charitable foundations, endowments and individual investors
throughout the United States. First Security is registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended. It has offices at 61 South Main Street, Salt Lake City,
Utah 84111, 119 North 9th Street, Boise, Idaho 83730, 219 Central
Avenue, N.W., Albuquerque, New Mexico 87102 and 530 Las Vegas
Boulevard, Las Vegas Nevada 89101. First Security Bank of Utah,
N.A., an affiliate of First Security, is the largest bank in the
State of Utah and one of the largest banks in the Rocky Mountain
region. The Fund pays fees at a rate of up to 0.50 of 1% of average
annual net assets to its Manager which in turn pays and up to 0.23
of 1% of average annual net assets to its Sub-Adviser (for total
fees at a rate of up to 0.50 of 1% of average annual net assets),
although some or all of these fees may be waived temporarily.
Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to
Redeem Your Investment." All arrangements for redemptions of Class
I Shares must be made through financial intermediaries. The Fund
does not impose redemption fees for redemption of Class Y Shares or
Class I Shares. However, financial intermediaries may charge a fee
for effecting redemptions.
Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of other Aquila-sponsored tax-free municipal bond
mutual funds, or two Aquila sponsored equity funds. You may also
exchange them into shares of the Aquila-sponsored money market
funds. Similar exchangability is available to Class I Shares to the
extent that other Aquila-sponsored funds are made available to its
customers by a financial intermediary. The exchange prices will be
the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price, determined
on each business day, varies with the market prices of the Fund's
portfolio securities, which fluctuate with market conditions,
including prevailing interest rates. Accordingly, the proceeds of
redemptions may be more or less than your original cost. (See
"Factors Which May Affect the Value of the Fund's Investments and
Their Yields.") The Fund's assets, being primarily or entirely Utah
issues, are subject to economic and other conditions affecting
Utah. (See "Risk Factors and Special Considerations Regarding
Investment in Utah Double-Exempt Obligations.") Moreover, the Fund
is classified as a "non-diversified" investment company, because it
may choose to invest in the obligations of a relatively limited
number of issuers. (See "Investment of the Fund's Assets.")
Statements and Reports - You will receive statements of your
Class Y Shares account monthly as well as each time you add to your
account or take money out. Financial intermediaries provide their
own statements of Class I Shares accounts. Additionally, you will
receive a Semi-Annual Report and an audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH
TABLE OF EXPENSES
Class I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases.............. None None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends .. None None
Maximum Deferred Sales Charge ......................... None None
Redemption Fees ....................................... None None
Exchange Fee .......................................... None None
Annual Fund Operating Expenses (1)(2)
(as a percentage of average net assets)
Management Fee After Waiver (3)........................ 0.06% 0.06%
12b-1 Fee ............................................. 0.10% None
All Other Expenses After Expense Reimbursement ........ 0.55% 0.30%
Total Fund Operating Expenses After Expense
Reimbursement and Fee Waivers .................... 0.71% 0.36%
Example (4)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
Class I Shares..... $7 $23 $40 $88
Class Y Shares..... $4 $12 $20 $46
<FN>
(1) Estimated based upon amounts incurred by the Fund's Class Y Shares
during its most recent fiscal year; restated to reflect current arrangements.
</FN>
<FN>
(2) Fees are being waived by the Manager and Sub-Adviser and it is
anticipated that once the asset size of the Fund reaches approximately $60
million these waivers will be increasingly reduced as the asset size of
the Fund increases, so that when assets exceed approximately $100 million
a substantial portion or all of these fees will be paid. Also, operating
expenses are being subsidized through reimbursement by the Administrator.
This subsidy is being phased out progressively so that the Fund will bear
its own expenses, other than advisory and administration fees, once its
asset size reaches approximately $60 million. The undertakings of the
Adviser and the Administrator as to fee waivers and practices of the
Administrator as to expense reimbursement may operate to reduce the fees
and expenses of the Fund during the development stage of the Fund (see
"Management Arrangements"). Other expenses do not reflect a 0.01% expense
offset in custodian fees received for uninvested cash balances. Without
fee waivers and expense reimbursement and including the offset in
custodian fees, expenses would have been incurred at the following annual
rates; for Class I Shares, management fee, 0.50%; 12b-1 fee, 0.10% (up to
0.25% can be authorized. See "Distribution Plan"); other expenses, 0.88%,
for total operating expenses of 1.48%; for Class Y Shares, management fee,
0.50%; other expenses 0.63%, for total operating expenses of 1.13%.
</FN>
<FN>
(3) The Fund pays the Manager an advisory fee at the annual rate of 0.50
of 1% of average annual net assets of which 0.44 of 1% is currently being
waived; the Manager pays the Sub-Advisor a sub-advisory fee at the annual
rate of 0.23 of 1% of average annual net assets of which 0.17 of 1% is
currently being waived. (See "Management Arrangements.")
</FN>
<FN>
(4) The expense example is based upon the annual Fund operating expenses.
It is also based upon amounts at the beginning of each year which includes
the prior year's assumed results. A year's results consist of an assumed
5% annual return less total annual operating expenses; the expense ratio
was applied to an assumed average balance (the year's starting investment
plus one-half the year's results). Each figure represents the cumulative
expenses so determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT
ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF
PREPARING THE ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD
NOT BE INTERPRETED AS A PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE
HIGHER OR LOWER.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Fund will bear
directly or indirectly. The above table should not be considered as a
commitment or prediction that any fees, or that any particular portion
of fees, will be waived, or that any particular expenses will be
reimbursed. (See "Management Arrangements" for a more complete
description of the various investment advisory and administration fees.)
<PAGE>
<TABLE>
<CAPTION>
The Table shown below for Class A Shares is for information purposes only.
Class A Shares are not offered by this Prospectus. No historical information
exists for Class I Shares which were established on October 31, 1997.
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is included
in the Fund's June 30, 1997 financial statements contained in its Annual
Report, which are incorporated by reference into the Additional Statement.
The information provided in the table should be read in conjunction with
the financial statements and related notes. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class Y Shares(2)
Year ended Year Period(4)
June 30, Ended Ended
June 30, June 30,
1997 1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year... ................ $9.74 $9.59 $9.32 $10.00 $9.74 $9.77
Income from Investment
Operations:
Net investment income .... 0.52 0.54 0.55 0.55 0.61 0.06
Net gain (loss) on
securities (both realized
and unrealized) ........ 0.21 0.15 0.27 (0.65) 0.21 (0.03)
Total from Investment
Operations ............. 0.73 0.69 0.82 (0.10) 0.82 0.03
Less Distributions:
Dividends from net
investment income ...... (0.53) (0.54) (0.55) (0.58) (0.62) (0.06)
Distributions from
capital gains .......... - - - (0.03) - -
Total Distributions ...... (0.53) (0.54) (0.55) (0.58) (0.62) (0.06)
Net Asset Value, End of
Year...................... $9.94 $9.74 $9.59 $9.32 $9.94 $9.74
Total Return (not reflecting
sales charge) (%) ......... 7.72 7.17 9.09 (1.09) 9.67+ 0.29+
Ratios/Supplemental Data
Net Assets, End of Year
($ in thousands) ........ 29.071 28,881 27,536 26,116 41 0.1
Ratio of Expenses to
Average Net Assets (%)... 0.27 0.19 0.08 0.03 0.07 0.03+
Ratio of Net Investment
Income to Average Net
Assets (%)............... 5.45 5.49 5.85 5.58 5.65 0.61+
Portfolio Turnover Rate(%). 5.09 11.15 22.92 27.53 5.09 11.15
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary
waiver of fees, the Administrator's voluntary expense reimbursement and
the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income($)... 0.42 0.43 0.43 0.40 0.50 0.05
Ratio of Expenses to
Average Net Assets(%).... 1.33 1.30 1.30 1.60 1.13 0.11+
Ratio of Net Investment
Income to Average Net
Assets(%)................ 4.39 4.37 4.63 2.97 4.59 0.53+
<CAPTION>
Class A(1)
Period (3)
ended
June 30, 1993
<C>
9.60
0.50
0.40
0.90
(0.50)
-
(0.50)
10.00
9.67+
12,938
0*
5.64*
36.52+
0.27
2.67*
2.97*
<FN>
(1) Designated as Class A Shares on May 21, 1996.
</FN>
<FN>
(2) New Class of Shares established on May 21, 1996.
</FN>
<FN>
(3) From July 24, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
(4) From May 21, 1996 through June 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Fund's shares are designed to be a suitable investment for
investors (other than corporations) who seek income exempt from
State of Utah and regular Federal income taxes.
You may invest in shares of the Fund as an alternative to
direct investments in Utah Double-Exempt Obligations, as defined
below, which may include obligations of certain non-Utah issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Utah Double-Exempt Obligations which may, but not necessarily will,
be more diversified, higher yielding or more stable and more liquid
than you might be able to obtain on an individual basis by direct
purchase of Utah Double-Exempt Obligations.
Through the convenience of a single security consisting of
shares of the Fund, you are also relieved of the inconvenience
associated with direct investments of fixed denominations,
including the selecting, purchasing, handling, monitoring call
provisions and safekeeping of Utah Double-Exempt Obligations.
Utah Double-Exempt Obligations are a type of municipal
obligation. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes; and floating and
variable rate demand notes. Municipal obligations include municipal
lease/purchase agreements which are similar to installment purchase
contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the
construction of a wide range of public facilities such as highways,
bridges, schools, hospitals, housing, mass transportation, streets
and water and sewer works. Other public purposes for which
municipal obligations may be issued include the refunding of
outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
INVESTMENT OF THE FUND'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both State of Utah and regular
Federal income taxes as is consistent with the preservation of
capital, the Fund will invest in Utah Double-Exempt Obligations (as
defined below). There is no assurance that the Fund will achieve
its objective, which is a fundamental policy of the Fund. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Utah Double-Exempt Obligations" means obligations, including
those of non-Utah issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate counsel,
is exempt from regular Federal income taxes and from Utah income
taxes other than taxes on corporations. Although exempt from
regular Federal income tax, interest paid on certain types of Utah
Double-Exempt Obligations, and dividends which the Fund might pay
from this interest, are preference items as to the Federal
alternative minimum tax; for further information, see "Dividend and
Tax Information." As a fundamental policy, at least 80% of the
Fund's net assets will be invested in Utah Double-Exempt
Obligations the income from which will not be subject to the
alternative minimum tax; accordingly, the Fund can invest up to 20%
of its net assets in obligations the income paid upon which is
subject to the Federal alternative minimum tax. The Fund may
refrain entirely from purchasing these types of Utah Double-Exempt
Obligations. While non-taxable to individuals and other taxpayers,
interest received from Utah and other municipal issuers is subject
to State of Utah taxes on corporations. (See "Utah Tax Information"
under "Dividend and Tax Information" below.)
Interest on bonds or other obligations issued by or under the
authority of states other than Utah and their agencies and
instrumentalities, Puerto Rico, Guam, the Northern Mariana Islands,
and the Virgin Islands are exempt from Utah income taxes (other
than certain taxes on corporations), as well as Federal income
taxes. The Fund will not purchase obligations of non-Utah issuers
unless Utah Double-Exempt Obligations of Utah issuers of the
desired quality, maturity and interest rate are not available. In
selecting Utah Double-Exempt Obligations of non-Utah issuers, the
Fund will choose obligations which in the judgement of First
Security Investment Management, Inc., the Fund's investment adviser
(the "Sub-Adviser"), are most appropriate to achieve the objectives
of the Fund.
As a Utah-oriented fund, under normal circumstances at least
65% of the Fund's total assets will be invested in Utah
Double-Exempt Obligations of Utah issuers. The Fund invests only in
Utah Double-Exempt Obligations.
In general, there are nine separate credit ratings ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of
quality-oriented (investment grade) securities, the Utah
Double-Exempt Obligations which the Fund will purchase must, at the
time of purchase, either (i) be rated within the four highest
credit ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if
unrated, be determined to be of comparable quality to municipal
obligations so rated by the Sub-Adviser, subject to the direction
and control of the Fund's Board of Trustees. Municipal obligations
rated in the fourth highest credit rating are considered by such
rating agencies to be of medium quality and thus may present
investment risks not present in more highly rated obligations. Such
bonds lack outstanding investment characteristics and may in fact
have speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Utah Double-Exempt Obligation is downgraded such that it
could not then be purchased by the Fund, or, in the case of an
unrated Utah Double-Exempt Obligation, if the Sub-Adviser
determines that the unrated obligation is no longer of comparable
quality to those rated obligations which the Fund may purchase, it
is the current policy of the Fund to cause any such obligation to
be sold as promptly thereafter as the Sub-Adviser in its discretion
determines to be consistent with the Fund's objectives; such
obligation remains in the Fund's portfolio until it is sold. In
addition, because a downgrade often results in a reduction in the
market price of a downgraded obligation, sale of such an obligation
may result in a loss. (See Appendix A to the Additional Statement
for further information as to these ratings.) The Fund can purchase
industrial development bonds only if they meet the definition of
Utah Double-Exempt Obligations, i.e., the interest on them is
exempt from State of Utah and regular Federal income taxes other
than Utah income taxes on corporations.
The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Fund also intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code (the "Code").
One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of the Fund, at
least 50% of its assets must consist of (i) cash; and (ii)
securities which, as to any one issuer, do not exceed 5% of the
value of the Fund's assets. If the Fund had elected to register
under the 1940 Act as a "diversified" investment company, it would
have to meet the same test as to 75% of its assets. The Fund may
therefore not have as much diversification among securities, and
thus diversification of risk, as if it had made this election under
the 1940 Act. In general, the more the Fund invests in the
securities of specific issuers, the more the Fund is exposed to
risks associated with investments in those issuers. The Fund's
assets, being primarily or entirely Utah issues, are accordingly
subject to economic and other conditions affecting Utah. (See "Risk
Factors and Special Considerations Regarding Investment in Utah
Double-Exempt Obligations.")
Certain Stabilizing Measures
The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and
cash equivalents in attempting to protect against declines in the
value of its investments and other market risks. There can,
however, be no assurance that these will be successful.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one year,
but permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding one year, in each case upon
not more than 30 days' notice. The issuer of such notes normally
has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the
noteholders. The interest rate on a floating rate demand note is
based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is adjusted
automatically at specified intervals.
Participation Interests
The Fund may purchase from financial institutions
participation interests in Utah Double-Exempt Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Utah Double-Exempt Obligations in the
proportion that the Fund's participation interest bears to the
total amount of the underlying Utah Double-Exempt Obligations. All
such participation interests must meet the Fund's credit
requirements. (See "Limitation to 10% as to Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Fund may buy Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis when it has the intention of
acquiring them. The Utah Double-Exempt Obligations so purchased are
subject to market fluctuation and no interest accrues to the Fund
until delivery and payment take place; their value at the delivery
date may be less than the purchase price. The Fund cannot enter
into when-issued commitments exceeding in the aggregate 15% of the
market value of the Fund's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Fund chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Fund places an amount of assets equal in value
to the amount due on the settlement date for the when-issued or
delayed delivery securities being purchased in a segregated account
with the Custodian, which is marked to market every business day.
(See the Additional Statement for further information.)
Limitation to 10% as to Certain Investments
The Fund cannot purchase Utah Double-Exempt Obligations that
are not readily marketable if thereafter more than 10% of its net
assets would consist of such investments. However, this 10% limit
does not include any Utah Double-Exempt Obligations as to which the
Fund can exercise the right to demand payment in full within three
days and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in
(i) Utah Double-Exempt Obligations the interest on which is paid
from revenues of similar type projects or (ii) industrial
development bonds, unless the Prospectus and/or the Additional
Statement are supplemented to reflect the change and to give
additional information.
Factors Which May Affect the Value
of the Fund's Investments and Their Yields
The value of the Utah Double-Exempt Obligations in which the
Fund invests will fluctuate depending in large part on changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Fund buys Utah Double-Exempt Obligations, the
value of these obligations will normally go down; if these rates go
down, the value of these obligations will normally go up. Changes
in value and yield based on changes in prevailing interest rates
may have different effects on short-term Utah Double-Exempt
Obligations than on long-term obligations. Long-term obligations
(which often have higher yields) may fluctuate in value more than
short-term ones. The Fund's portfolio will represent a blend of
short-term and long-term obligations designed to reduce
fluctuations in the net asset value of the shares of the Fund.
Risk Factors and Special Considerations as to Investment in Utah
Double-Exempt Obligations of Utah Issuers
The Fund provides Utah residents with the benefits of
investing primarily in obligations of issuers of the State of Utah,
thereby participating in the financing of various Utah-oriented
public purpose projects which assist in the economic development of
the State and the quality of life of its residents. However, since
the Fund invests primarily in obligations of Utah issuers, there is
less diversification of the portfolio of the Fund and there may be
less breadth to the market for its portfolio securities than is
available for obligations of non-Utah issuers. In addition, the
yield of obligations of Utah issuers in which the Fund invests may
not be as high as that available from obligations of issuers of
other states, for various reasons, including favorable evaluation
in credit markets of the credit quality of Utah issuers as compared
to other issuers. The following is a discussion of various factors
that might influence the ability of Utah issuers to pay principal
and interest when due on the Utah Double-Exempt Obligations
contained in the portfolio of the Fund. Such information is derived
from sources that are generally available to investors and is
believed by the Fund to be accurate but has not been independently
verified and may not be complete.
Utah's economy is dominated by service industries, trade,
government and various manufacturing sectors. While Utah's economy
has significantly outperformed the national economy for several
years, and its overall employment growth rate in recent years has
ranked among the highest in the nation, there can be no assurance
that such conditions will continue in the future.
The population of the State has increased in recent years,
with the increase being attributable to both natural population
increase and net in-migration. From fiscal years 1984 through 1989
the State experienced out-migration because of an economy outpaced
by the growth of its labor force and a decline in the State's
energy producing industries. In fiscal year 1996, Utah's population
rose 2.2% to 2,000,100, including 13,400 in-migrants. It is not
known at the present time whether current trends will continue.
Utah has more school-age children and fewer working adults, as a
percentage of its population, than any other state; hence, to pay
the State's education costs, Utah households pay more in state and
local taxes per household than the national average. This current
relatively high level of taxation could adversely affect the
ability of Utah issuers to raise taxes substantially or at all.
A large percentage of the land in Utah is owned by the Federal
Government or included in Indian reservations, thereby reducing the
tax base of the State and its political subdivisions. Since 1991,
defense-related employment has lost 15,000 jobs. However, the
conversion of one large military facility to manufacturing will
soon be completed. Some communities in the State contain major
industries heavily dependent on defense-related government
contracts for their revenues. The termination of such government
contracts could increase unemployment and reduce taxes paid by such
industries.
The ability of Utah and its political subdivisions to borrow
money and to levy and collect taxes is limited by constitutional
and statutory restrictions such as debt limitations and limitations
on revenue increases. In recent years attempts have been made by
popular initiative to further restrict the borrowing and taxing
capacity of the State and its political subdivisions. It is not
possible to predict whether any such proposals will be enacted in
the future or their possible impact on State or local government
financing.
The State receives revenues from three principal sources; (a)
taxes and licenses; (b) Federal grants-in-aid; and (c) fees, the
State's share of mineral royalties, bonuses on Federal land and
other miscellaneous charges and receipts. In the 1996 fiscal year,
24.8% of those revenues came from sales taxes. The State collects
an individual income tax and a corporate franchise tax, but all net
revenues from such taxes are distributed to local school districts.
Local governments are heavily dependent on ad valorem property
tax revenues, but also can receive revenues from other local taxes
and fees. There can be no assurance that a material downturn in the
State's economy, with the resulting impact on State and local
finances, will not adversely affect the market value of the Utah
Double-Exempt Obligations held in the Fund or the ability of the
respective obligors to make debt service payments on such Utah
Double-Exempt Obligations.
The availability of water is a significant concern in Utah.
During the past decade the State has experienced periods of both
flooding and drought. Water issues will likely affect the growth
and prosperity of the State in the future.
The Utah Double-Exempt Obligations in which the Fund may
invest from time to time include general obligation bonds, revenue
bonds, industrial revenue bonds and special tax assessment bonds,
and the sensitivity of each of these types of investments to the
general and economic factors discussed above may vary
significantly. No assurance can be given as to the effect, if any,
that these factors, individually or in the aggregate, may have on
any individual Utah Double-Exempt Obligations or on the Fund as a
whole.
Obligations of non-Utah issuers are subject to the risks of
general economic and other factors affecting those issuers.
INVESTMENT RESTRICTIONS
The Fund has a number of policies about what it can and cannot
do. Certain of these policies, identified in the Prospectus and the
Additional Statement as "fundamental policies," cannot be changed
unless the holders of a "majority," as defined in the 1940 Act, of
the Fund's outstanding shares vote to change them. (See the
Additional Statement for a definition of such a majority.) All
other policies can be changed from time to time by the Board of
Trustees without shareholder approval. Some of the more important
of the Fund's fundamental policies, not otherwise identified in the
Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations meeting the standards stated under
"Investment of the Fund's Assets."
2. The Fund has industry investment requirements.
The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Fund cannot make loans.
The Fund can buy those Utah Double-Exempt Obligations which it
is permitted to buy (see "Investment of the Fund's Assets"); this
is investing, not making a loan. The Fund cannot lend its portfolio
securities.
4. The Fund can borrow only in limited amounts for special
purposes.
The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage or
pledge its assets only in connection with such borrowing and only
up to the lesser of the amounts borrowed or 5% of the value of its
total assets. Interest on borrowings would reduce the Fund's
income. Except in connection with borrowings, the Fund will not
issue senior securities. The Fund will not purchase any Utah
Double-Exempt Obligations while it has any outstanding borrowings
which exceed 5% of the value of its total assets.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the New
York Stock Exchange is open (a "business day"), by dividing the
value of the Fund's net assets (i.e., the value of the assets less
liabilities) allocable to each class by the total number of shares
of such class then outstanding. Determination of the value of the
Fund's assets is subject to the direction and control of the Fund's
Board of Trustees. In general, it is based on market value, except
that Utah Obligations maturing in 60 days or less are generally
valued at amortized cost; see the Additional Statement for further
information.
HOW TO INVEST IN THE FUND
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Utah
Double-Exempt Obligations.
Institutional Class Shares ("Class Y Shares") are offered only
to institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, and are not offered
directly to retail customers. Class Y Shares are offered at
net asset value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. (the "Distributor") has
entered into sales agreements, and are not offered directly to
retail customers. Class I Shares are offered at net asset
value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other transaction on
behalf of its customers. Class I Shares may carry a
distribution fee of up to 0.25 of 1% of average annual net
assets allocable to Class I Shares, currently 0.10 of 1% of
such net assets, and a services fee of 0.25 of 1% of such
assets. (See "Distribution Plan" and Shareholder Services
Plan.")
The Fund's other classes of shares, Front-Payment Class Shares
("Class A Shares") and Level-Payment Class Shares, ("Class C
Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Fund and Its Shares.")
At the date of the Prospectus, Class Y Shares of the Fund are
registered for sale only in Colorado, District of Columbia,
Florida, Hawaii, New Jersey, New York and Utah.
At the date of the Prospectus, Class I Shares of the Fund are
registered for sale only in Utah and New York.
If you do not reside in one of those states you should not
purchase shares of the Fund. If shares are sold outside of those
states except to certain institutional investors, the Fund can
redeem them. Such a redemption may result in a loss to you and may
have tax consequences. In addition, if your state of residence is
not Utah, the dividends from the Fund may not be exempt from income
tax of the state in which you reside. Accordingly, you should
consult your tax adviser before acquiring shares of the Fund.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered only
to institutional investors for investments held in a fiduciary,
advisory, agency, custodial or similar capacity, or through them to
their clients, and are not offered directly to retail customers.
Class Y Shares are offered at net asset value with no sales charge,
no redemption fee, no contingent deferred sales charge and no
distribution fee.
Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker or
dealer, if it is a selected dealer; or (ii) mail the Application
with payment to the Fund's Shareholder Servicing Agent (the
"Agent") at the address on the Application. There is no sales
charge on initial or subsequent investments. You are urged to
complete an Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment.
The minimum initial investment for Class Y Shares is $100,000
for fiduciaries and $250,000 for all other eligible purchasers,
except that this limitation does not apply to shareholders with
accounts open on October 31, 1997, or as otherwise stated in the
Prospectus or the Additional Statement. Such investment must be
drawn in United States dollars on a United States commercial or
savings bank, credit union or a United States branch of a foreign
commercial bank (each of which is a "Financial Institution"). You
may make subsequent investments in Class Y Shares in any amount
(unless you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number, the name of the Fund. With subsequent investments,
please send the pre-printed stub attached to the Fund's
confirmations.
Subsequent investments of $50 or more in Class Y Shares can be
made by electronic funds transfer from your demand account at a
Financial Institution. To use electronic funds transfer for your
purchases, your Financial Institution must be a member of the
Automated Clearing House and the Agent must have received your
completed Application designating this feature, or, after your
account has been opened, a Ready Access Features form available
from the Distributor or the Agent. A pre-determined amount can be
regularly transferred for investment ("Automatic Investment"), or
single investments can be made upon receipt by the Agent of
telephone instructions from anyone ("Telephone Investment"). The
maximum amount of each Telephone Investment is $50,000. Upon 30
days' written notice to shareholders, the Fund may modify or
terminate these investment methods at any time or charge a service
fee, although no such fee is currently contemplated.
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to all
purchase orders received by the Agent from selected dealers that
day, except that orders received by it after 4:00 p.m. New York
time will receive that day's offering price only if such orders
were received by selected dealers from customers prior to such time
and transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so transmitted,
such orders will be filled at the next determined offering price.
Selected dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next determined
after receipt of the purchase order by the Agent. Purchase orders
received on other than a business day will be executed on the next
succeeding business day. Purchases by Automatic Investment and
Telephone Investment will be executed on the first business day
occurring on or after the date an order is considered received by
the Agent at the price determined on that day. In the case of
Automatic Investment your order will be executed on the date you
specified for investment at the price determined on that day. If
that day is not a business day your order will be executed at the
price determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price. If your order is placed after the time for
determining the net asset value of the Fund shares for any day it
will be executed at the price determined on the following business
day. The sale of shares will be suspended during any period when
the determination of net asset value is suspended and may be
suspended by the Distributor when the Distributor judges it in the
Fund's best interest to do so.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must be
made through financial intermediaries and cannot be made directly.
Financial intermediaries may set minimum amounts for initial
purchase and subsequent investments in Class I Shares and may
charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Fund and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms of
their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with the
Fund may enter confirmed purchase orders on behalf of clients and
customers, with payment to follow not later than the Fund's pricing
of Class I Shares on the following business day. If payment is not
received by that time the financial intermediary could be held
liable for resulting fees or losses.
Offering Price
The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to all
purchase orders received by the Agent from selected dealers that
day, except that orders received by it after 4:00 p.m. New York
time will receive that day's offering price only if such orders
were received by selected dealers from customers prior to such time
and transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so transmitted,
such orders will be filled at the next determined offering price.
Selected dealers are required to transmit orders promptly.
Investments by mail are made at the offering price next determined
after receipt of the purchase order by the Agent. Purchase orders
received on other than a business day will be executed on the next
succeeding business day. Purchases by Automatic Investment and
Telephone Investment will be executed on the first business day
occurring on or after the date an order is considered received by
the Agent at the price determined on that day. In the case of
Automatic Investment your order will be executed on the date you
specified for investment at the price determined on that day. If
that day is not a business day your order will be executed at the
price determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price. If your order is placed after the time for
determining the net asset value of the Fund shares for any day, it
will be executed at the price determined on the following business
day. The sale of shares will be suspended during any period when
the determination of net asset value is suspended and may be
suspended by the Distributor when the Distributor judges it in the
Fund's best interest to do so.
The offering price for Class I Shares is the net asset value
per share. The offering price determined on any day applies to all
purchases received by each financial intermediary prior to 4:00
p.m. New York time on any business day. Purchase orders received by
financial intermediaries after that time will be filled at the next
determined offering price.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of any
class of shares of the Fund. Additional compensation may include
payment or partial payment for advertising of the Fund's shares,
payment of travel expenses, including lodging, incurred in
connection with attendance at sales seminars taken by qualifying
registered representatives to locations within or outside of the
United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. In some
instances, such compensation may be made available only to certain
dealers whose representatives have sold or are expected to sell
significant amounts of such shares. Dealers may not use sales of
the Fund's shares to qualify for the incentives to the extent such
may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers,
Inc. The cost to the Distributor of such promotional activities and
such payments to participating dealers will not exceed the amount
of the sales charges in respect of sales of all classes of shares
of the Fund effected through such participating dealers, whether
retained by the Distributor or reallowed to participating dealers.
No such additional compensation to dealers in connection with sales
of shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of Class Y Shares will be confirmed and credited
to you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). Purchases of Class I Shares will be confirmed by
financial intermediaries. No share certificates will be issued for
Class Y Shares or Class I Shares.
The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended to
result in the sale of its shares except pursuant to a written plan
adopted under the Rule. No payments under the Plan from assets
represented by Class Y Shares are authorized.
Under a part of the Plan, the Fund is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal year
of the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for any
fiscal year which is not a full fiscal year), at a rate set from
time to time by the Board of Trustees (currently 0.10 of 1%) but
not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Fund. Such payments shall
be made only out of the Fund's assets allocable to the Class I
Shares. "Qualified Recipients" means financial intermediaries
selected by the Distributor with which the Fund or the Distributor
has entered into written agreements to act in such capacity.
The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses which
might be considered to be sales-related which the Fund pays or may
pay come within the purview of the Rule. The Fund believes that
except for payments made with respect to Class A Shares and Class
C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so financing
any such activity. If and to the extent that any payment as
specifically listed in the Plan (see the Additional Statement) is
considered to be primarily intended to result in or as indirect
financing of any activity which is primarily intended to result in
the sale of Fund shares, these payments are authorized under the
Plan. In addition, if the Administrator, out of its own funds,
makes payment for distribution expenses such payments are
authorized. (See the Additional Statement.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Fund is
authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the Conduct
Rules of the National Association of Securities Dealers, Inc.
("NASD"). The current limitation is as follows: fees paid under the
Plan that satisfy the definition of "service fees" in Rule 2830(d)
of the Conduct Rules of the National Association of Securities
Dealers, Inc. may not exceed an amount equal to the difference
between (i) 0.25 of 1% of the average annual net assets of the Fund
represented by Class I Shares and (ii) the amount paid under the
Fund's Distribution Plan with respect to the assets represented by
the Class I Shares. That is, the total payments under both plans
will be less than 0.25 of 1% of such net assets. Where necessary or
appropriate, the Independent Trustees, or such appropriate officer
or officers of the Fund as they may designate, shall, with the
advice of counsel, determine what fees paid under this Plan are to
be deemed "service fees." The Fund's management believes that, in
general, fees allocable to activities such as sub-accounting and
record-keeping are not "service fees," while fees allocable to
activities such as account service are "service fees." In like
manner, allocation of payments among activities is also determined
by the Independent Trustees or their delegates. Subject to the
foregoing, Service Payments may not exceed, for any fiscal year of
the Fund (as adjusted for any part or parts of a fiscal year during
which payments under the Plan are not accruable or for any fiscal
year which is not a full fiscal year), 0.25 of 1% of the average
annual net assets represented by the Class I Shares of the Fund.
Such payments shall be made only out of the Fund's assets
represented by the Class I Shares.
"Qualified Recipients" means broker-dealers or others selected
by the Distributor, including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements to provide personal services to
Class I Shares shareholders, maintenance of Class I Shares
shareholder accounts and/or pursuant to specific agreements
entering of confirmed purchase orders on behalf of customers or
clients and which have provided services to holders of Class I
Shares and/or maintenance of Class I Shares shareholder accounts.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares, including
without limitation, (i) activities relating to sub-accounting and
record-keeping, including the providing of necessary personnel and
facilities to establish and maintain shareholder accounts and
records, and (ii) activities relating to account service, such as
assisting shareholders in designating and changing dividend
options, account designations and addresses; answering customer
inquiries regarding account status and history and the manner in
which purchases and redemptions of shares of the Fund may be
effected; transmitting and receiving funds in connection with
customer orders to purchase or redeem shares, including, where
appropriate, arranging for the wiring of funds; assisting in
processing purchase and redemption transactions; and verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts. A majority of the Independent Trustees (as defined in the
Plan) may remove any person as a Qualified Recipient and no fees
shall be paid pursuant to the Plan for activities primarily
intended to result in the sale of shares of the Fund or to finance
sales or sales promotion expenses. No fees shall be paid, or be
deemed to have been paid, for any of the listed activities to the
extent that such payments are deemed by the Independent Trustees to
be intended for distribution. Service Payments shall be paid
through the Distributor or shareholder servicing agent as
disbursing agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
Redemption of Class Y Shares
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your redemption
request at the Agent. Redemptions can be made by the various
methods described below. There is no minimum period for any
investment in the Fund, except for shares recently purchased by
check, Automatic Investment or Telephone Investment as discussed
below. There are no redemption fees or penalties on redemption of
Class Y Shares. A redemption may result in a transaction taxable to
you.
For your convenience the Fund offers expedited redemption for
Class Y Shares to provide you with a high level of liquidity for
your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Fund and the check is sent to your address of record,
provided that there has not been a change of your address
of record during the 30 days preceding your redemption
request. You can make only one request for telephone
redemption by check in any 7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
2. By FAX or Mail. You may also request redemption
payments to a predesignated Financial Institution account
by a letter of instruction sent after November 8, 1997
to: PFPC Inc., 400 Bellevue Parkway, Wilmington, DE
19809. Before November 8, 1997 send your letter of
instructions to Administrative Data Management Corp.,
Attn: Aquilasm Group of Funds, by FAX at 732-855-5730 or
by mail at 581 Main Street, Woodbridge, NJ 07095-1198.
The letter must provide account name(s), account number,
amount to be redeemed, and any payment directions and be
signed by the registered holder(s). Signature guarantees
are not required. See "Redemption Payments", below for
payment methods.
If you wish to have redemption proceeds sent directly to a
Financial Institution Account you should so elect on the Expedited
Redemption section of the Application or the Ready Access Features
form and provide the required information concerning your Financial
Institution account number. The Financial Institution account must
be in the exclusive name(s) of the shareholder(s) as registered
with the Fund. You may change the designated Financial Institution
account at any time by completing and returning a Ready Access
Features form. For protection of your assets, this form requires
signature guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y Shares and you have not elected
Expedited Redemption to a predesignated Financial Institution
account, you must use the Regular Redemption Method. Under
this redemption method you should send a letter of instruction
(after November 8, 1997) to: to the Fund's Shareholder
Servicing Agent: PFPC Inc., 400 Bellevue Parkway, Wilmington,
DE 19809. Before November 8, 1997 send your letter to
Administrative Data Management Corp., Attn: Aquilasm Group of
Funds, 581 Main Street, Woodbridge, NJ 07095-1198. The letter
must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the Fund);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated below.
For a redemption request to be in "proper form," the signature
or signatures must be the same as in the registration of the
account. In a joint account, the signatures of both shareholders
are necessary. Signature guarantees may be required if sufficient
documentation is not on file with the Agent. Additional
documentation may be required where shares are held by certain
types of shareholders such as corporations, partnerships, trustees
or executors, or if redemption is requested by other than the
shareholder of record. If redemption proceeds of $50,000 or less
are payable to the record holder and are to be sent to the record
address, no signature guarantee is required, except as noted above.
In all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent bank,
a participant in the Securities Transfer Association Medallion
Program (STAMP), the Stock Exchanges Medallion Program (SEMP) or
the New York Stock Exchange, Inc. Medallion Signature Program
(MSP). A notary public is not an acceptable signature guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at the
net asset value next determined after acceptance of your redemption
request by your financial intermediary. Redemption requests for
Class I Shares must be made through a financial intermediary and
cannot to be made directly. Financial intermediaries may charge a
fee for effecting redemptions. There is no minimum period for any
investment in the Fund. The Fund does not impose redemption fees or
penalties on redemption of Class I Shares. A redemption may result
in a transaction taxable to you.
Redemption Payments
Redemption payments with respect to Class Y Shares will
ordinarily be mailed to you at your address of record. If you so
request and the amount of your redemption proceeds is $1,000 or
more, the proceeds will, wherever possible, be wired or transferred
through the facilities of the Automated Clearing House to the
Financial Institution account specified in the Expedited Redemption
section of your Application or Ready Access Features form. The Fund
may impose a charge, not exceeding $5.00 per wire redemption, after
written notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this charge.
Upon 30 days' written notice to shareholders, the Fund may modify
or terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them. If you
use a broker or dealer to arrange for a redemption, you may be
charged a fee for this service. Redemption Payments for Class I
Shares are made to financial intermediaries.
The Fund will normally make payment for all shares redeemed on
the next business day (see "Net Asset Value Per Share") following
acceptance of the redemption request made in compliance with one of
the redemption methods specified above. Except as set forth below,
in no event will payment be made more than seven days after
acceptance of such a redemption request. However, the right of
redemption may be suspended or the date of payment postponed (i)
during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is
restricted as determined by the Securities and Exchange Commission
by rule or regulation; (ii) during periods in which an emergency,
as determined by the Securities and Exchange Commission, exists
which causes disposal of, or determination of the net asset value
of, the portfolio securities to be unreasonable or impracticable;
or (iii) for such other periods as the Securities and Exchange
Commission may permit. Payment for redemption of Class Y Shares
recently purchased by check (irrespective of whether the check is
a regular check or a certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment may be delayed
up to 15 days or until (i) the purchase check or Automatic
Investment or Telephone Investment has been honored or (ii) the
Agent has received assurances by telephone or in writing from the
Financial Institution on which the purchase check was drawn, or
from which the funds for Automatic Investment or Telephone
Investment were transferred, satisfactory to the Agent and the
Fund, that the purchase check or Automatic Investment or Telephone
Investment will be honored. Possible delays in payment of
redemption proceeds for Class Y Shares can be eliminated by using
wire payments or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make
payment wholly or partly in cash, the Fund may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. (See
the Additional Statement for details.)
The Fund has the right to compel the redemption of shares held
in any account if the aggregate net asset value of such shares is
less than $500 as a result of shareholder redemptions or failure to
meet the minimum investment level under an Automatic Purchase
Program. If the Board elects to do this, shareholders who are
affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this
redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
If you had a Class Y Shares account before October 31, 1997,
you may establish an Automatic Withdrawal Plan if you own or
purchase Class Y Shares of the Fund having a net asset value of at
least $5,000.
Under an Automatic Withdrawal Plan you will receive a monthly
or quarterly check in a stated amount, not less than $50. If such
a plan is established, all dividends and distributions must be
reinvested in your shareholder account. Redemption of Class Y
Shares to make payments under the Automatic Withdrawal Plan will
give rise to a gain or loss for tax purposes. (See the Automatic
Withdrawal Plan provisions of the Application included in the
Prospectus, the Additional Statement under "Automatic Withdrawal
Plan," and "Dividend and Tax Information" below.)
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.
Change in Management Arrangements
On October 24, 1997, the management arrangements described
below were approved by the Fund's shareholders and went into
effect. The new arrangements are designed to change the form of the
Fund's investment advisory and administration arrangements to a new
structure involving an adviser and a sub-adviser. The proposed
arrangements do not result in any change in overall management fees
paid by the Fund, nor any change in the parties providing these
services. Marketing efforts and positioning of the Fund will remain
the same with a strong local niche orientation.
Under the new arrangements, Aquila Management Corporation
("Aquila"), which since inception of the Fund has served as the
Fund's administrator, in addition became investment adviser under
a new agreement (the "Advisory and Administration Agreement") under
which it also continues to provide the Fund with all administrative
services. Also, by adoption of a Sub-Advisory Agreement between
Aquila and First Security Investment Management, Inc. (the
"Sub-Adviser"), the former investment advisory agreement was
replaced by one under which Aquila appointed the Sub-Adviser as
Sub-Adviser to the Fund. Under the Sub-Advisory Agreement, the
Sub-Adviser will continue to provide the Fund with advisory
services of the kind which it formerly provided as adviser. The
duties of the administrator, previously performed under an
administration agreement, are now performed by Aquila under the
Advisory and Administration Agreement where Aquila is referred to
as the "Manager." The former administration agreement terminated
upon approval of the new agreements.
The Advisory and Administration Agreement
The Advisory and Administration Agreement between the Fund and
Aquila Management Corporation (the "Manager") has several parts,
most of which are substantially identical to corresponding
provisions in the Fund's former advisory agreements and
administration agreement. The Advisory and Administration Agreement
contains provisions relating to investment advice for the Fund and
management of its portfolio that are substantially identical to
prior advisory agreements, except that the Manager has the power to
delegate its advisory functions to a sub-adviser, which it will
employ at its own expense. It has delegated these duties to the
Sub-Adviser. The Advisory and Administration Agreement contains
provisions relating to administrative services that are
substantially identical to those contained in the Fund's current
administration agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall:
(i) supervise continuously the investment program of the
Fund and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Fund;
(iii) arrange for the purchase and the sale of securities held
in the portfolio of the Fund; and
(iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Fund's portfolio at least quarterly using
another such source satisfactory to the Fund.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the Manager
may at its own expense delegate to a qualified organization (the
"Sub-Adviser"), affiliated or not affiliated with the Manager, any
or all of the above duties. Any such delegation of the duties set
forth in (i), (ii) or (iii) above shall be by a written agreement
(the "Sub-Advisory Agreement") approved as provided in Section 15
of the Investment Company Act of 1940. The Manager has delegated
all of such functions to the Sub-Adviser in the Sub-Advisory
Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Fund, the Manager shall provide all administrative services to
the Fund other than those relating to its investment portfolio
which have been delegated to a Sub-Adviser of the Fund under the
Sub-Advisory Agreement; as part of such administrative duties, the
Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Fund;
(ii) oversee all relationships between the Fund and any
sub-adviser, transfer agent, custodian, legal counsel, auditors and
principal underwriter, including the negotiation of agreements in
relation thereto, the supervision and coordination of the
performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for the
effective operation of the Fund and for the sale, servicing or
redemption of the Fund's shares;
(iii) either keep the accounting records of the Fund,
including the computation of net asset value per share and the
dividends (provided that if there is a Sub-Adviser, daily pricing
of the Fund's portfolio shall be the responsibility of the
Sub-Adviser under the Sub-Advisory Agreement) or, at its expense
and responsibility, delegate such duties in whole or in part to a
company satisfactory to the Fund;
(iv) maintain the Fund's books and records, and prepare (or
assist counsel and auditors in the preparation of) all required
proxy statements, reports to the Fund's shareholders and Trustees,
reports to and other filings with the Securities and Exchange
Commission and any other governmental agencies, and tax returns,
and oversee the insurance relationships of the Fund;
(v) prepare, on behalf of the Fund and at the Fund's expense,
such applications and reports as may be necessary to register or
maintain the registration of the Fund and/or its shares under the
securities or "Blue-Sky" laws of all such jurisdictions as may be
required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Fund and broker-dealers, or if any such inquiry
or communication is more properly to be responded to by the Fund's
shareholder servicing and transfer agent or distributor, oversee
such shareholder servicing and transfer agent's or distributor's
response thereto.
The Advisory and Administration Agreement contains provisions
relating to compliance of the investment program, responsibility of
the Manager for any investment program managed by it, allocation of
brokerage, and responsibility for errors that are substantially the
same as the corresponding provisions in the Sub-Advisory Agreement.
(See the Additional Statement.)
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, pay all compensation of
Trustees, officers, and employees of the Fund who are affiliated
persons of the Manager.
The Fund bears the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to
its shareholders, and the costs of printing or otherwise producing
and distributing those copies of such prospectuses, statements of
additional information and reports as are sent to its shareholders.
All costs and expenses not expressly assumed by the Manager under
this sub-section or otherwise by the Manager, administrator or
principal underwriter or by any Sub-Adviser shall be paid by the
Fund, including, but not limited to (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv) compensation
and expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent, or
shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; and (xi)
such non-recurring expenses as may arise, including litigation
affecting the Fund and the legal obligations for which the Fund may
have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that the
Fund agrees to pay the Manager, and the Manager agrees to accept as
full compensation for all services rendered by the Manager as such,
an annual fee payable monthly and computed on the net asset value
of the Fund as of the close of business each business day at the
annual rate of 0.50 of 1% of such net asset value.
The Advisory and Administration Agreement provides that the
Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the Manager
agrees not to terminate the Sub-Advisory Agreement except in
accordance with such authorization and direction of the Board of
Trustees, if any, as may be in effect from time to time. The
Advisory and Administration Agreement provides that it may be
terminated by the Manager at any time without penalty upon giving
the Fund sixty days' written notice (which notice may be waived by
the Fund) and may be terminated by the Fund at any time without
penalty upon giving the Manager sixty days' written notice (which
notice may be waived by the Manager), provided that such
termination by the Fund shall be directed or approved by a vote of
a majority of its Trustees in office at the time or by a vote of
the holders of a majority (as defined in the Act) of the voting
securities of the Fund outstanding and entitled to vote. The
specific portions of the Advisory Agreement which relate to
providing investment advisory services will automatically terminate
in the event of the assignment (as defined in the Act) of the
Advisory Agreement, but all other provisions relating to providing
services other than investment advisory services will not
terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Fund as of the close of business each business day shall be
reduced to the annual rate of 0.27 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser;
which provides, subject to the control of the Board of Trustees,
for investment supervision and at the Sub-Adviser's expense for
pricing of the Fund's portfolio daily using a pricing service or
other source of pricing information satisfactory to the Fund and,
unless otherwise directed by the Board of Trustees, for pricing of
the Fund's portfolio at least quarterly using another such source
satisfactory to the Fund. The Sub-Advisory Agreement states that
the Sub-Adviser shall, at its expense, provide to the Fund all
office space and facilities, equipment and clerical personnel
necessary for the carrying out of the Sub-Adviser's duties under
the Sub-Advisory Agreement.
Under the Sub-Advisory Agreement, the Sub-Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager agrees to pay
the Sub-Adviser, and the Sub-Adviser agrees to accept as full
compensation for all services rendered by the Sub-Adviser as such,
a management fee payable monthly and computed on the net asset
value of the Fund as of the close of business each business day at
the annual rates of 0.23 of 1% of such net asset value. The
Sub-Adviser and/or the Manager may, in order to attempt to achieve
a competitive yield on the shares of the Fund, each waive all or
part of their respective fees.
The Sub-Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Sub-Adviser is
authorized to consider sales of shares of the Fund or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the Fund.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser, First Security Investment Management, Inc.,
was incorporated in August 1984 and is a subsidiary of First
Security Investment Services, Inc., which in turn is a wholly-owned
subsidiary of First Security Corporation, a Utah-headquartered
financial services organization with consolidated assets of $13.1
billion as of August 31, 1997. In addition to advising the Fund,
the Sub-Adviser's advisory experience includes the management of
The Achievement Family of Funds, funds unrelated to the Fund and
the provision of investment management services to banks and thrift
institutions, corporate and profit-sharing trusts, Taft-Hartley,
municipal and state retirement funds, charitable foundations,
endowments and individual investors throughout the United States.
The Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Adviser has
offices at 61 South Main Street, Salt Lake City, Utah 84111, 119
North 9th Street, Boise, Idaho 83730, 219 Central Avenue, N.W.,
Albuquerque, New Mexico 87102 and 530 Las Vegas Boulevard, Las
Vegas Nevada 89101.
First Security Bank of Utah, N.A., an affiliate of the Sub-
Adviser, is the largest bank in the State of Utah and one of the
largest banks in the Rocky Mountain region. The Sub-Adviser is not
permitted to purchase the securities of or enter into principal
transactions with any of its affiliates, including First Security
Bank of Utah, when acting on behalf of the Fund. The above
restriction does not apply, however, to securities issued or
underwritten by banks or other financial institutions which are not
themselves affiliates of the Sub-Adviser, although they may have a
correspondent banking or other business relationship with one or
more of the First Security banks. (See below and in the Additional
Statement as to the legality, under the Glass-Steagall Act, of the
Sub-Adviser's acting as the Fund's investment adviser.) In general,
under that Act, the Sub-Adviser will not, among other things, be
involved in the promotion or distribution of shares of the Fund.
Sterling K. Jenson has managed the Fund's portfolio since
commencement of the Fund's operations in July, 1992. Mr. Jenson is
President, Chief Executive Officer and Senior Portfolio Manager
with the Sub-Adviser and has been employed in the investment
management business for over 19 years. He is a member of the
Association for Investment Management and Research (AIMR) and has
earned the professional designations Chartered Financial Analyst
(CFA) and Chartered Investment Counselor (CIC). He received his
B.S. degree (Economics) and M.B.A. degree from Brigham Young
University.
The Fund's Manager is founder of and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal bond
funds, money market funds and two equity funds. As of June 30,
1997, these funds had aggregate assets of approximately $2.8
billion, of which approximately $1.9 billion consisted of assets of
the tax-free municipal bond funds. The Manager, which was founded
in 1984, is controlled by Mr. Lacy B. Herrmann (directly, through
a trust and through share ownership by his wife). (See the
Additional Statement for information on Mr. Herrmann.)
During the fiscal year ended June 30, 1997, fees of $67,588
and $79,323, respectively, were accrued to the Sub-Adviser and
Manager under the former advisory and administration agreements
then in effect. Of these amounts, the Sub-Adviser and Manager
waived $55,749 and $72,207, respectively. In addition, during that
period the Manager agreed to reimburse the Fund for other expenses
during this period in the amount of $199,119 of which $66,512 was
paid prior to June 30, 1997 and the balance of $132,607 was paid in
July and early August of 1997.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds, five
money market funds and two equity funds), including the Fund. Under
the Distribution Agreement, the Distributor is responsible for the
payment of certain printing and distribution costs relating to
prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
At the date of the Prospectus, there is a proposed transaction
whereby all of the shares of the Distributor, which are currently
owned 75% by Mr. Herrmann and 25% by Diana P. Herrmann, will be
owned by certain directors and/or officers of the Manager and/or
the Distributor, including Mr. Herrmann and Ms. Herrmann.
Authority to Act as Investment Sub-Adviser
Banking laws and regulations, including the Glass-Steagall Act
as currently interpreted by the Board of Governors of the Federal
Reserve System, prohibit a bank holding company registered under
the Bank Holding Company Act of 1956 or any affiliate thereof from
sponsoring, organizing, controlling or distributing the shares of
a registered, open-end investment company continuously engaged in
the issuance of its shares, and prohibit banks generally from
issuing, underwriting, selling or distributing securities, but do
not prohibit such a bank holding company or affiliate from acting
as investment adviser, transfer agent or custodian to such an
investment adviser, or from purchasing shares of such a company as
agent for and upon the order of a customer. The Sub-Adviser and the
Fund believe that the Sub-Adviser may perform the advisory services
for the Fund described in the Prospectus. However, future changes
in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of
present requirements, could prevent the Sub-Adviser from continuing
to perform investment advisory services for the Fund.
If the Sub-Adviser were prohibited from performing investment
advisory services for the Fund, it is expected that the Board of
Trustees of the Fund would recommend to the Fund's shareholders
that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Fund will declare all of its net income, as defined below,
as dividends on every day, including weekends and holidays, on
those shares outstanding for which payment was received by the
close of business on the preceding business day. Net income for
dividend purposes includes all interest income accrued by the Fund
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Fund's dividends will also vary. Dividends
and other distributions paid by the Fund with respect to each class
of its shares are calculated at the same time and in the same
manner. In addition, the dividends of each class can vary because
each class will bear certain class-specific charges.
It is the Fund's present policy to pay dividends so that they
will be received or credited by approximately the first day of each
month. On the Application or by completing a Ready Access Features
form, holders of Class Y Shares may elect to have dividends
deposited without charge by electronic funds transfers into an
account at a Financial Institution if it is a member of the
Automated Clearing House. All arrangements for the payment of
dividends with respect to Class I Shares, including reinvestment of
dividends, must be made through financial intermediaries.
Redeemed shares continue to earn dividends through and
including the earlier of (i) the day before the day on which the
redemption proceeds are mailed, wired or transferred by the
facilities of the Automated Clearing House by the Agent or paid by
the Agent to a selected dealer; or (ii) the third day on which the
New York Stock Exchange is open after the day on which the net
asset value of the redeemed shares has been determined. (See "How
To Redeem Your Investment.")
Net investment income includes amounts of income from the Utah
Double-Exempt Obligations in the Fund's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the use
of one designated percentage applied uniformly to all income
dividends declared during the Fund's tax year. Such designation
will normally be made in the first month after the end of each of
the Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small portion
of the dividends paid by the Fund will be subject to income taxes.
During the Fund's fiscal year ended June 30, 1997, 97.89% of the
Fund's dividends were "exempt-interest dividends." For the calendar
year 1996, 1.88% of the total dividends paid were taxable as
ordinary income. The percentage of income designated as tax-exempt
for any particular dividend may be different from the percentage of
the Fund's income that was tax-exempt during the period covered by
the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be paid
out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions to
shareholders, and from short- and long-term gains distributions (if
any) and any other distributions that do not qualify as
"exempt-interest dividends," if shareholders do not comply with
provisions of the law relating to the furnishing of taxpayer
identification numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the Agent
or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be automatically
reinvested in full and fractional shares of the Fund at net asset
value on the record date for the dividend or distribution or other
date fixed by the Board of Trustees. An election to receive cash
will continue in effect until written notification of a change is
received by the Agent. All shareholders, whether their dividends
are received in cash or are being reinvested, will receive a
monthly account summary indicating the current status of their
investment. There is no fixed dividend rate. Corporate shareholders
of the Fund are not entitled to any deduction for dividends
received from the Fund.
Tax Information
The Fund qualified during its last fiscal year as a "regulated
investment company" under the Code, and intends to continue to so
qualify. If it does so qualify, it will not be liable for Federal
income taxes on amounts paid by it as dividends and distributions.
However, the Code contains a number of complex tests relating to
such qualification and it is possible although not likely that the
Fund might not meet one or more of these tests in any particular
year. If it does not so qualify, it would be treated for tax
purposes as an ordinary corporation, would receive no tax deduction
for payments made to shareholders and would be unable to pay
dividends or distributions which would qualify as "exempt-interest
dividends" or "capital gains dividends," as discussed below.
The Fund intends to qualify during each fiscal year under the
Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income earned
by the Fund on Utah Double-Exempt Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends" are
not taxed, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Fund)
received or acquired during the year.
The Code requires that either gains realized by the Fund on
the sale of municipal obligations acquired after April 30, 1993 at
a price which is less than face or redemption value be included as
ordinary income to the extent such gains do not exceed such
discount or that the discount be amortized and included ratably in
taxable income. There is an exception to the foregoing treatment if
the amount of the discount is less than 0.25% of face or redemption
value multiplied by the number of years from acquisition to
maturity. The Fund will report such ordinary income in the years of
sale or redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as ordinary
income.
Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates) are
reportable by shareholders as gain from the sale or exchange of a
capital asset held for more than one year. This is the case whether
the shareholder takes the distribution in cash or elects to have
the distribution reinvested in Fund shares and regardless of the
length of time the shareholder has held his or her shares.
Short-term gains, when distributed, are taxed to shareholders
as ordinary income. Capital losses of the Fund are not distributed
but carried forward by the Fund to offset gains in later years and
thereby lessen the later-year capital gains dividends and amounts
taxed to shareholders.
The Fund's gains or losses on sales of Utah Double-Exempt
Obligations will be long-term or short-term depending upon the
length of time the Fund has held such obligations.
Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders to
enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under rules
used by the Internal Revenue Service for determining when borrowed
funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Fund may be
considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of
shares. The receipt of exempt-interest dividends from the Fund by
an individual shareholder may result in some portion of any social
security payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in taxable
income.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds or
private activity bonds should consult their own tax advisers before
purchasing shares.
While interest from all Utah Double-Exempt Obligations is
tax-exempt for purposes of computing the shareholder's regular tax,
interest from so-called private activity bonds issued after August
7, 1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the taxpayer's
return. The Fund will not invest in the types of Utah Double-Exempt
Obligations which would give rise to interest that would be subject
to alternative minimum taxation if more than 20% of its net assets
would be so invested, and may refrain from investing in that type
of bond completely. The 20% limit is a fundamental policy of the
Fund.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current earnings,
this adjustment will tend to make it more likely that corporate
shareholders will be subject to the alternative minimum tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid for
the shares. If you are required to pay a contingent deferred sales
charge at the time of redemption, the amount of that charge will
reduce the amount of your gain or increase the amount of your loss
as the case may be. Your gain or loss will be long-term if you held
the redeemed shares for over 18 months, mid-term if you held the
redeemed shares for over one year but not more than 18 months and
short-term, if for a year or less. Long term capital gains are
currently taxed at a maximum rate of 20%, mid-term capital gains
are currently taxed at a maximum rate of 28%, and short-term gains
are currently taxed at ordinary income tax rates. However, if
shares held for six months or less are redeemed and you have a
loss, two special rules apply: the loss is reduced by the amount of
exempt-interest dividends, if any, which you received on the
redeemed shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the
extent you have received capital gains dividends on the redeemed
shares.
Utah Tax Information
Distributions of interest income made by the Fund from Utah
Double-Exempt Obligations will generally be treated for purposes of
the Utah Individual Income Tax Act in the same manner as they are
treated under the Internal Revenue Code for Federal income tax
purposes. (See the prior discussion under "Dividend and Tax
Information.") Individual shareholders of the Fund generally will
not be subject to Utah income tax on distributions received from
the Fund to the extent such distributions are attributable to
interest income on Utah Double-Exempt Obligations. Certain
subtractions relating to retirement income received by shareholders
under the age of 65 and the exemption allowed to individuals over
the age of 65 may be reduced because the receipt of exempt-interest
dividends from the Fund will be added to federal adjusted gross
income for purposes of calculating the income of individuals for
Utah income tax purposes. Other distributions from the Fund,
including capital gains dividends, will generally not be exempt
from Utah income tax.
For corporate investors, distributions of interest income from
Utah Double-Exempt Obligations are not exempt from the Utah
corporate franchise and income tax, although a credit against the
corporate franchise and income tax is available with respect to a
portion of the interest income from obligations issued by the State
of Utah, its agencies and instrumentalities and its political
subdivisions. Prior to January 1, 1993 the credit is generally
equal to 2.5% of the gross interest income from such Utah
obligations. From and after January 1, 1993, the credit is
generally equal to 1% of the gross interest income from such Utah
obligations. The Utah corporate franchise or income tax applies to
every state or national bank or corporation, with certain
exceptions specifically enumerated by Utah law.
Shares of the Fund will not be subject to the Utah property
tax.
You should consult your tax advisor concerning the specific
state and local tax consequences from your investment in the Fund.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and equity funds
(the "Bond or Equity Funds") and certain money market funds (the
"Money-Market Funds"), all of which are sponsored by Aquila
Management Corporation and Aquila Distributors, Inc., and have the
same Administrator and Distributor as the Fund. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila-sponsored Bond and Equity Funds are this
Fund, Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity
Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free
Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund
of Kentucky, and Narragansett Insured Tax-Free Income Fund; the
Aquila Money-Market Funds are Capital Cash Management Trust,
Pacific Capital Cash Assets Trust (Original Shares), Pacific
Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Treasuries Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a Money-Market
Fund. Similar exchangability is available to Class I Shares to the
extent that other Aquila-sponsored funds are made available to its
customers by a financial intermediary. All exchanges of Class I
Shares must be made through your financial intermediary.
Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and any
shares acquired as a result of reinvestment of dividends and/or
distributions) may be exchanged any number of times between
Money-Market Funds and Class Y Shares of the Bond or Equity Funds
without the payment of any sales charge.
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market Fund,
or which were received in exchange for Class Y Shares of another
Bond or Equity Fund; or (b) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class Y Eligible
Shares. Shares of a Money-Market Fund not acquired in exchange for
Class Y Eligible Shares of a Bond or Equity Fund can be exchanged
for Class Y Shares of a Bond or Equity Fund only by persons
eligible to make an initial purchase of Class Y Shares.
This Fund, as well as the Money-Market Funds and other Bond or
Equity Funds, reserves the right to reject any exchange into its
shares, if shares of the fund into which exchange is desired are
not available for sale in your state of residence. The Fund may
also modify or terminate this exchange privilege at any time. In
the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect
on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset value
of the shares surrendered for exchange are at least equal to the
minimum investment requirements of the investment company whose
shares are being acquired and (iii) the ownership of the accounts
from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-446-8824 toll free
Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed to
verify the identity of the caller. The Agent will request some or
all of the following information: account name(s) and number, name
of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You
should verify the accuracy of confirmation statements immediately
upon receipt.
Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. Exchanges of Class I Shares will be
effected at the relative net asset values of the Class I Shares
being exchanged next determined after receipt by the financial
intermediary of your exchange request. (See "How to Invest in the
Fund.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the realization
of a capital gain or loss, depending on the cost or other tax basis
of the shares exchanged and the holding period (see "Tax Effects of
Redemptions" and the Additional Statement); no representation is
made as to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free money-market
fund) are exempt from regular Federal income tax, and to the extent
that a portion or all of the dividends paid by Pacific Capital U.S.
Treasuries Cash Assets Trust (which invests in U.S. Treasury
obligations) are exempt from state income taxes. Dividends paid by
Aquila Rocky Mountain Equity Fund and Aquila Cascadia Equity Fund
are taxable. If your state of residence is not the same as that of
the issuers of obligations in which a tax-free municipal bond fund
or a tax-free money-market fund invests, the dividends from that
fund may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a bond fund or a tax-free money-market fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
GENERAL INFORMATION
Performance
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's performance
including current yield, taxable equivalent yield, various
expressions of total return, current distribution rate and taxable
equivalent distribution rate.
Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1- and 5-year periods and for a period
since the inception of the Fund, to the extent applicable, through
the end of such periods, assuming reinvestment (without sales
charge) of all distributions. The Fund may also furnish total
return quotations for other periods or based on investments at
various applicable sales charge levels or at net asset value. For
such purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price. (See the Additional Statement.)
Current yield reflects the income per share earned by each of
the Fund's portfolio investments; it is calculated by (i) dividing
the Fund's net investment income per share during a recent 30-day
period by (ii) the maximum public offering price on the last day of
that period and by (iii) annualizing the result. Taxable equivalent
yield shows the yield from a taxable investment that would be
required to produce an after-tax yield equivalent to that of the
Fund, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Fund's yield (calculated as
indicated) by one minus a stated income tax rate and by adding the
product to the taxable portion (if any) of the Fund's yield. (See
the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities and
Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to
shareholders are reflected in the current distribution rate or
taxable equivalent distribution rate which may be quoted to
shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum offering
price and by (iii) annualizing the result. A taxable equivalent
distribution rate shows the taxable distribution rate that would be
required to produce an after-tax distribution rate equivalent to
the Fund's distribution rate (calculated as indicated above). The
current distribution rate differs from the current yield
computation because it could include distributions to shareholders
from sources, if any, other than dividends and interest, such as
short-term capital gains or return of capital. If distribution
rates are quoted in advertising, they will be accompanied by
calculations of current yield in accordance with the formula of the
Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of expenses,
if any, and will assume the payment of the maximum sales charge, if
any, on the purchase of shares, but not on reinvestment of income
dividends. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's yield, tax equivalent
yield, distribution rate, taxable equivalent distribution rate or
total return may be in any future period. The annual report of the
Fund contains additional performance information that will be made
available upon request and without charge.
Description of the Fund and Its Shares
The Fund is an open-end, non-diversified management investment
company organized in December, 1990 as a Massachusetts business
trust. (See the sixth paragraph under "Investment of the Fund's
Assets" for further information about the Fund's status as
"non-diversified.") The Fund began operations in July, 1992.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in
the Fund. Each share represents an equal proportionate interest in
the Fund with each other share of its class; shares of the
respective classes represent proportionate interests in the Fund in
accordance with their respective net asset values. Income, direct
liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and
expenses, if any, of the Fund will be allocated among the series in
a manner acceptable to the Board of Trustees. Upon liquidation of
a series, shareholders of the series are entitled to share pro-rata
in the net assets of that series available for distribution to
shareholders and upon liquidation of the Fund, the respective
series are entitled to share proportionately in the assets
available to the Fund after allocation to the various series.
Shareholders of each series or class are entitled to share pro-rata
in the net assets of the Fund available for distribution to
shareholders, in accordance with the respective net asset values of
the shares of that series or class at that time. The Fund currently
has only one series of shares. Upon liquidation of the Fund,
shareholders are entitled to share pro-rata in the net assets of
the Fund available for distribution to shareholders, in accordance
with the respective net asset values of the shares of each of the
Fund's classes at that time. All shares are presently divided into
four classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Fund may
create additional classes of shares (subject to rules and
regulations of the Securities and Exchange Commission or by
exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such series
will have a designation including the word "Series"). (See the
Additional Statement for further information about possible
additional series.) Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no pre-emptive or
conversion rights.
The other two classes of shares of the Fund are Front-Payment
Class Shares ("Class A Shares") and Level-Payment Class Shares
("Class C Shares"), which are fully described in a separate
prospectus that can be obtained by calling the Fund at
800-882-4937.
The primary distinction among the Fund's classes of shares
lies in their different sales charge structures and ongoing
expenses, which are likely to be reflected in differing yields and
other measures of investment performance. All classes represent
interests in the same portfolio of Utah Double-Exempt Obligations
and have the same rights, except that each class bears the separate
expenses, if any, of its Distribution Plan and has exclusive voting
rights with respect to its Plan. There are no distribution fees
with respect to Class Y Shares.
The Fund's Distribution Plan has four parts. In addition to
the provisions relating to Class I Shares and the defensive
provisions described above, Parts I and II of the Plan authorize
payments, to certain "Qualified Recipients," out of the Fund assets
allocable to the Class A Shares and Class C Shares, respectively.
(See the Additional Statement.) The Fund has also adopted a
Shareholder Services Plan under which the Fund is authorized to
make certain payments out of the Fund assets allocable to the Class
C Shares. (See the Additional Statement.)
See the notes to the Statement of Assets and Liabilities in
the annual report for information as to the amortization of the
Fund's organizational and start-up expenses. A copy of the
financial statements contained in the annual report is incorporated
by reference into the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders will
vote on the election of Trustees and on other matters submitted to
the vote of shareholders. Shares vote by classes on any matter
specifically affecting one or more classes, such as an amendment of
an applicable part of the Distribution Plan. No amendment may be
made to the Declaration of Trust without the affirmative vote of
the holders of a majority of the outstanding shares of the Fund,
except that the Fund's Board of Trustees may change the name of the
Fund. The Fund may be terminated (i) upon the sale of its assets to
another issuer, or (ii) upon liquidation and distribution of the
assets of the Fund, in either case if such action is approved by
the vote of the holders of a majority of the outstanding shares of
the Fund. If not so terminated, the Fund will continue
indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE FUND FOR UTAH
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
After November 8, 1997: PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
Before November 8, 1997: ADM, ATTN: Aquilasm Group of Funds
581 Main Street, Woodbridge, NJ 07095-1198 Tel.# 1-800-446-8824
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Make check payment to TAX-FREE FUND FOR UTAH)
__ Initial Investment $______________ (Minimum $1,000 for shareholders
with Class Y Shares accounts before October 31, 1997)
(After October 31, 1997:
Minimum $100,000 for fiduciaries and $250,000 for all other
eligible purchasers)
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be: ___ Reinvested ___ Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Fund For Utah Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Fund toll-free at 1-800-446-8824. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Available only to shareholders who had Class Y Shares accounts before
October 31, 1997)
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to
1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, the Fund's Shareholder
Servicing Agent (the "Agent") is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance
with the terms below:
Dollar Amount of each withdrawal $ ______________beginning______________
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
________________________________________ ___________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ____________________________________
Street Financial Institution Street Address
_______________________________ ____________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's telephone instructions to execute the exchange of shares of one
Aquila-sponsored fund for shares of another Aquila-sponsored fund with
identical shareholder registration in the manner described in the
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this Fund
account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ _____________________________________
Account Registration Financial Institution Account Number
_______________________________ _____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ _____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to my/our
account any drafts or debits drawn on my/our account initiated by the
Agent, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number __________________________________
Name and Address where my/our account is maintained
Name of Financial Institution__________________________________________
Street Address_________________________________________________________
City_______________________________State _________________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except any
loss due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing
of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay
any such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Fund and has received and
read a current Prospectus of the Fund and agrees to its terms.
- - I/We authorize the Fund and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Fund and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Fund account to make up any
deficiency resulting from any decline in the net asset value of shares
so purchased and any dividends paid on those shares. I/We authorize the
Fund and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Fund account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Fund, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity of
the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number is
shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no such
Number has been issued, and a Number has been or will soon be applied
for; if a Number is not provided to you within sixty days, the
undersigned understands that all payments (including liquidations) are
subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Fund, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ __________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ __________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Fund's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Fund or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Fund reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-882-4937 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Fund's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Fund. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................5
Introduction.....................................6
Investment Of The Fund's Assets..................6
Investment Restrictions.........................11
Net Asset Value Per Share.......................11
How To Invest In The Fund.......................12
How To Redeem Your Investment...................14
Automatic Withdrawal Plan.......................16
Management Arrangements.........................16
Dividend And Tax Information....................20
Exchange Privilege..............................23
General Information.............................25
Application
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
PROSPECTUS
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
<PAGE>
Aquila
TAX-FREE FUND FOR UTAH
380 Madison Avenue
Suite 2300
New York, NY 10017
800-UTAH-YES
(800-882-4937)
212-697-6666
Statement
of Additional Information
October 31, 1997
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for the
Fund dated October 31, 1997: one Prospectus describes Front-
Payment Class Shares ("Class A Shares") and Level-Payment Class
Shares ("Class C Shares") of the Fund and the other describes
Institutional Class ("Class Y Shares") and Financial Intermediary
Class Shares ("Class I Shares") of the Fund. References in the
Additional Statement to "the Prospectus" refer to either of these
Prospectuses. The Additional Statement should be read in
conjunction with the Prospectus for the class of shares in which
you are considering investing. Either or both Prospectuses may be
obtained from the Fund's Shareholder Servicing Agent, (after
November 8, 1997) PFPC Inc., 400 Bellevue Parkway, Wilmington, DE
19809 or by calling the following number:
800-446-8824 toll free
or from Aquila Distributors, Inc., the Fund's Distributor, by
writing to 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling: 800-882-4937 toll free or 212-697-6666.
The Annual Report of the Fund for the fiscal year ended June
30, 1997 will be delivered with the Additional Statement.
TABLE OF CONTENTS
Investment of the Fund's Assets. . . . . . . . . . . . . . . . .2
Municipal Bonds. . . . . . . . . . . . . . . . . . . . . . . . .3
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Investment Restrictions. . . . . . . . . . . . . . . . . . . . .9
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . 10
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 16
Limitation of Redemptions in Kind. . . . . . . . . . . . . . . 18
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 18
Additional Information as to Management Arrangements . . . . . 23
Computation of Net Asset Value . . . . . . . . . . . . . . . . 27
Automatic Withdrawal Plan. . . . . . . . . . . . . . . . . . . 28
Additional Tax Information . . . . . . . . . . . . . . . . . . 28
Conversion of Class Shares . . . . . . . . . . . . . . . . . . 29
General Information. . . . . . . . . . . . . . . . . . . . . . 29
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 32
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
The investment objective and policies of the Fund are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definition of "Utah Double-Exempt
Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Utah Double-Exempt
Obligations which the Fund may purchase.
The table below gives information as to the percentage of the
Fund's net assets invested, as of June 30, 1997, in Utah Double
Tax-Exempt Obligations in the various rating categories:
Highest rating (1). . . . . . . . . . . . . . . . . . 68.6%
Second highest rating (2) . . . . . . . . . . . . . . 17.4%
Third highest rating (3). . . . . . . . . . . . . . . 11.6%
Fourth highest rating (4) . . . . . . . . . . . . . . . 1.0%
Unrated Obligations. . . . . . . . . . . . . . . . . . 1.4%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
When-Issued and Delayed Delivery Obligations
The Fund may purchase Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis. The purchase price and the
interest rate payable on the Utah Double-Exempt Obligations are
fixed on the transaction date. At the time the Fund makes the
commitment to purchase Utah Double-Exempt Obligations on a
when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value each day of such Utah
Double-Exempt Obligations in determining its net asset value. The
Fund will make commitments for such when-issued transactions only
when it has the intention of actually acquiring the Utah
Obligations. The Fund will maintain with the Custodian a separate
account with portfolio Utah Obligations in an amount at least equal
to such commitments, which will be marked to market every business
day. On delivery dates for such transactions, the Fund will meet
its commitments by selling the Utah Double-Exempt Obligations held
in the separate account and/or from cash flow.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average value
of such securities during the year, excluding certain short-term
securities. Since the turnover rate of the Fund will be affected by
a number of factors, the Fund is unable to predict what rate the
Fund will have in any particular period or periods, although such
rate is not expected to exceed 100%. However, the rate could be
substantially higher or lower in any particular period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue or special tax bonds are payable only from the
revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to
levy unlimited general taxes. There are, of course, variations in
the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other
things, general financial conditions, general conditions of the
municipal bond market, size of a particular offering, the maturity
of the obligation and rating of the issue.
Since the Fund may invest in industrial development bonds or
private activity bonds, the Fund may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of [a] facility" financed from the proceeds
of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Utah
Double-Exempt Obligations the interest on which is subject to the
Federal alternative minimum tax on individuals. While the Fund may
purchase these obligations, it may, on the other hand, refrain from
purchasing particular Utah Double-Exempt Obligations due to this
tax consequence. Also, as indicated in the Prospectus, the Fund
will not purchase obligations of issuers the interest on which is
subject to regular Federal income tax. The foregoing may reduce the
number of issuers of obligations which are available to the Fund.
As stated in the Prospectus, floating and variable rate demand
notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. In
determining marketability of any such securities, the Board of
Trustees will consider the following factors, not all of which may
be applicable to any particular issue: the quality, maturity and
coupon rate of the issue, ratings received from the nationally
recognized statistical rating organizations and any changes or
prospective changes in such ratings, the likelihood that the issuer
will continue to appropriate the required payments for the issue,
recent purchases and sales of the same or similar issues, the
general market for municipal securities of the same or similar
quality, the Sub-Adviser's opinion as to marketability of the issue
and other factors that may be applicable to any particular issue.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject to
rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by
the Fund are based on these standardized methods and are computed
separately for each of the Fund's three classes of shares. Prior to
May 21, 1996, the Fund had outstanding only one class of shares
which are currently designated "Class A Shares." During most of the
historical periods listed below, there were no Class C Shares or
Class Y Shares outstanding and the information below relates solely
to Class A Shares unless otherwise indicated. Class I Shares were
first offered on November 8, 1997 and none were outstanding during
the periods indicated. Each of these and other methods that may be
used by the Fund are described in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over a 1-year period and
a period since the inception of the operations of the Fund (on July
24, 1992) that would equate an initial hypothetical $1,000
investment in shares of each of the Fund's three classes to the
value such an investment would have if it were completely redeemed
at the end of each such period.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. In the case of Class C Shares, the calculation
assumes the applicable Contingent Deferred Sales Charge ("CDSC")
imposed on a redemption of Class C Shares held for the period is
deducted. In the case of Class Y Shares, the calculation assumes
that no sales charge is deducted and no CDSC is imposed. For all
three classes, it is assumed that on each reinvestment date during
each such period any capital gains are reinvested at net asset
value, and all income dividends are reinvested at net asset value,
without sales charge (because the Fund does not impose any sales
charge on reinvestment of dividends for any class). The computation
further assumes that the entire hypothetical account was completely
redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%)
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Fund. Actual performance will be affected less by this one
time charge the longer an investment remains in the Fund.
Average Annual Compounded Rates of Return:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.37% 5.76% 8.80%
Since
inception on
July 22, 1992 5.66% 7.02%(1) 8.80%(1)
<FN>
(1) Period from May 21, 1996 (inception of class) through June 30, 1997.
</FN>
</TABLE>
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-year period
or the period since inception, at the end of each
such period.
As discussed in the Prospectus, the Fund may quote total rates
of return in addition to its average annual total return for each
of its three classes of shares. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except
that such quotations will be based on the Fund's actual return for
a specified period as opposed to its average return over the
periods described above.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 3.37% 5.76% 8.80%
Since
inception on
July 22, 1992 31.26% 7.81%(1) 9.78%(1)
<FN>
(1) Period from May 21, 1996 (inception of class) through June 30, 1997.
</FN>
</TABLE>
In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return, above.
Yield
Current yield reflects the income per share earned by the
Fund's portfolio investments. Current yield is determined by
dividing the net investment income per share earned for each of the
Fund's three classes during a 30-day base period by the maximum
offering price per share on the last day of the period and
annualizing the result. Expenses accrued for the period include any
fees charged to all shareholders of each class during the base
period net of fee waivers and reimbursements of expenses, if any.
The Fund may also quote a taxable equivalent yield for each of
its three classes of shares which shows the taxable yield that
would be required to produce an after-tax yield equivalent to that
of a fund which invests in tax-exempt obligations. Such yield is
computed by dividing that portion of the yield of the Fund
(computed as indicated above) which is tax-exempt by one minus the
highest applicable combined federal and Utah income tax rate (and
adding the result to that portion of the yield of the Fund that is
not tax-exempt, if any).
The Utah and the combined Utah and federal income tax rates
upon which the Fund's tax equivalent yield quotations are based are
7.0% and 43.28%, respectively. The latter rate reflects
currently-enacted Federal income tax law. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Fund will be updated to reflect such
changes. Any tax rate increases will tend to make a tax-free
investment, such as the Fund, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Fund sales material.
Yield for the 30-day period ended June 30, 1997 (the date of the
Fund's most recent audited financial statements:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 4.91% 4.10% 5.11%
Taxable
Equivalent
Yield 8.64% 7.23% 9.01%
</TABLE>
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
Where:
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Fund's shareholders.
Amounts paid to shareholders are reflected in the quoted current
distribution rate or taxable equivalent distribution rate. The
current distribution rate is computed by (i) dividing the total
amount of dividends per share paid by the Fund during a recent
30-day period by (ii) the current maximum offering price and by
(iii) annualizing the result. A taxable equivalent distribution
rate shows the taxable distribution rate that would be required to
produce an after-tax distribution rate equivalent to the Fund's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A Shares of the Fund at net asset
value, the Fund may quote a "Current Distribution for Net Asset
Value Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Fund during a recent
30-day period by (ii) the current net asset value of the Fund and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are published, they will be accompanied
by calculations of current yield in accordance with the formula of
the Securities and Exchange Commission.
The Fund may include in advertisements and sales literature,
information, examples and statistics that illustrate the effect of
taxable versus tax-free compounding income at a fixed rate of
return to demonstrate the growth of an investment over a stated
period of time resulting from the payment of dividends and capital
gains distributions in additional shares. The examples used will be
for illustrative purposes only and are not representations by the
Fund of past or future yield or return.
From time to time, in reports and promotional literature, the
Fund may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices of
broad groups of unmanaged securities considered to be
representative of, or similar to, the Fund's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales charges
into consideration. The method of calculating total return data on
indices utilizes actual dividends on ex-dividend dates accumulated
for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the funds'
three-, five-, and ten-year average annual returns (when available)
and a risk factor that reflects fund performance relative to
three-month Treasury bill monthly returns. Fund's returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars, and the bottom
10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list the
par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on the
Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well
as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of inflation. The Index
shows changes in the cost of selected consumer goods and does not
represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in national
financial publications such as MONEY, FORBES, BUSINESS WEEK,
BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE WALL
STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be
cited.
INVESTMENT RESTRICTIONS
The Fund has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Fund's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Fund's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Fund's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Fund's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than Utah
Double-Exempt Obligations (discussed under "Investment of the
Fund's Assets" in the Prospectus); therefore the Fund cannot buy
any voting securities, any commodities or commodity contracts, any
mineral related programs or leases, any shares of other investment
companies or any warrants, puts, calls or combinations thereof.
The Fund cannot buy real estate or any non-liquid interests in
real estate investment trusts; however, it can buy any securities
which it can otherwise buy even though the issuer invests in real
estate or has interests in real estate.
2. The Fund does not buy for control.
The Fund cannot invest for the purpose of exercising control
or management of other companies.
3. The Fund does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin.
4. The Fund is not an underwriter.
The Fund cannot engage in the underwriting of securities, that
is, the selling of securities for others. Also, it cannot invest in
restricted securities. Restricted securities are securities which
cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Fund's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part IV).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Fund would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Manager,
Sub-Adviser or the Distributor. The Distributor will consider
shares which are not Qualified Holdings of such unrelated
broker-dealers to be Qualified Holdings of the Distributor and will
authorize Permitted Payments to the Distributor with respect to
such shares whenever Permitted Payments are being made under the
Plan.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements in connection with Part I ("Class
A Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Front-Payment Class Shares or servicing of
shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Front-Payment Class Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers, other
customers, other contacts, investment advisory clients, or other
clients, if the Qualified Recipient was, in the sole judgment of
the Distributor, instrumental in the purchase and/or retention of
such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Board of Trustees
of the Fund, the Fund may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan are
not accruable or for any fiscal year which is not a full fiscal
year), 0.20 of 1% of the average annual net assets of the Fund
represented by the Front-Payment Class Shares. Such payments shall
be made only out of the Fund's assets allocable to the
Front-Payment Class Shares.
The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class A
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class A Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; assisting
in processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in connection
with customer orders to purchase or redeem shares; verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end
statements and confirmations of purchases and redemptions;
transmitting, on behalf of the Fund, proxy statements, annual
reports, updating prospectuses and other communications from the
Fund to its shareholders; receiving, tabulating and transmitting to
the Fund proxies executed by shareholders with respect to meetings
of shareholders of the Fund; and providing such other related
services as the Distributor or a shareholder may request from time
to time; and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part I is in effect, the Fund's Distributor shall report
at least quarterly to the Fund's Trustees in writing for their
review on the following matters: (i) all Class A Permitted Payments
made under Section 9 of the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor,
sub-adviser or Administrator paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the Act, of the Fund, the
Manager, Sub-Adviser, or the Distributor, such person shall agree
to furnish to the Distributor for transmission to the Board of
Trustees of the Fund an accounting, in form and detail satisfactory
to the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part I originally went into effect when it was approved (i) by
a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part I of the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of
the Front-Payment Class Shares class (or of any predecessor class
or category of shares, whether or not designated as a class) and a
vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level-Payment Class Shares
and/or of any other class whose shares are convertible into
Front-Payment Class Shares. Part I has continued, and will, unless
terminated as hereinafter provided, continue in effect, until the
December 31 next succeeding such effectiveness, and from year to
year thereafter only so long as such continuance is specifically
approved at least annually by the Fund's Trustees and its
Independent Trustees with votes cast in person at a meeting called
for the purpose of voting on such continuance. Part I may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined
in the 1940 Act) of the outstanding voting securities of the Fund
to which Part I applies. Part I may not be amended to increase
materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part I as
set forth in (ii) above, and all amendments must be approved in the
manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Class A Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to May 21, 1996 or (ii) Class A
Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares
Class ("Class C Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements in connection with Part II ("Class
C Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Level-Payment Class Shares or servicing of
shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers, other
customers, other contacts, investment advisory clients, or other
clients, if the Qualified Recipient was, in the sole judgment of
the Distributor, instrumental in the purchase and/or retention of
such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class C Permitted Payments")
to Qualified Recipients, which Class C Permitted Payments may be
made directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.75 of 1% of the
average annual net assets of the Fund represented by the
Level-Payment Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do not
exceed the amount set forth above. The Distributor is authorized,
but not directed, to take into account, in addition to any other
factors deemed relevant by it, the following: (a) the amount of
the Qualified Holdings of the Qualified Recipient; (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Shares, including without limitation, any or all of
the following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options, account
designations and addresses; providing necessary personnel and
facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Fund, proxy statements,
annual reports, updating prospectuses and other communications from
the Fund to its shareholders; receiving, tabulating and
transmitting to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and providing such
other related services as the Distributor or a shareholder may
request from time to time; and (c) the possibility that the
Qualified Holdings of the Qualified Recipient would be redeemed in
the absence of its selection or continuance as a Qualified
Recipient. Notwithstanding the foregoing two sentences, a majority
of the Independent Trustees (as defined below) may remove any
person as a Qualified Recipient. Amounts within the above limits
accrued to a Qualified Recipient but not paid during a fiscal year
may be paid thereafter; if less than the full amount is accrued to
all Qualified Recipients, the difference will not be carried over
to subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the Fund,
the Adviser, the Administrator or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part II of the Plan; and (ii) by a vote of holders of at least
a "majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares. Part II has continued, and will,
unless terminated as thereinafter provided, continue in effect,
until the December 31 next succeeding such effectiveness, and from
year to year thereafter only so long as such continuance is
specifically approved at least annually by the Fund's Trustees and
its Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. Part II may
be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the outstanding voting securities
of the Fund to which Part II applies. Part II may not be amended to
increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected by
Part II as set forth in (ii) above, and all amendments must be
approved in the manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Class C Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to May 21, 1996 or (ii) Class C
Plan Agreements entered into thereafter.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Fund, with which the Fund or the Distributor has
entered into written agreements in connection with Part III ("Class
I Plan Agreements") and which have rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Fund's Class I Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Class I Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other contacts,
investment advisory clients, or other clients, if the Qualified
Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares and/or
in providing administrative assistance or other services in
relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class I Permitted Payments")
to Qualified Recipients, which Class I Permitted Payments may be
made directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), at a rate fixed
for time to time by the Board of Trustees, initially 0.10 of 1% of
the average annual net assets of the Fund represented by the Class
I Shares, but not more than 0.25 of 1% of such assets. Such
payments shall be made only out of the Fund's assets allocable to
Class I Shares. The Distributor shall have sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class C
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class I Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account,
in addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares, including
without limitation, any or all of the following activities:
answering customer inquiries regarding account status and history,
and the manner in which purchases and redemptions of shares of the
Fund may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in processing
purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf
of the Fund, proxy statements, annual reports, updating
prospectuses and other communications from the Fund to its
shareholders; receiving, tabulating and transmitting to the Fund
proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and providing such other related services
as the Distributor or a shareholder may request from time to time;
and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part III is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class I Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Fund to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the Fund,
the Adviser, the Administrator or the Distributor, such person
shall agree to furnish to the Distributor for transmission to the
Board of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part III originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part III of the Plan; and (ii) by a vote of holders of at least
a "majority" (as so defined) of the outstanding voting securities
of the Class I Shares Class. Part III has continued, and will,
unless terminated as thereinafter provided, continue in effect,
until the December 31 next succeeding such effectiveness, and from
year to year thereafter only so long as such continuance is
specifically approved at least annually by the Fund's Trustees and
its Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. Part II may
be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the outstanding voting securities
of the Fund to which Part III applies. Part III may not be amended
to increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected by
Part III as set forth in (ii) above, and all amendments must be
approved in the manner set forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Fund, the
Class I Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Fund's
Distribution Plan in effect prior to May 1, 1996 or (ii) Class I
Plan Agreements entered into thereafter.
Payments Under the Plan
During the fiscal years ended June 30, 1997, 1996 and 1995,
$58,706, $57,015, and $52,964, respectively, were paid under the
Plan with respect to Class A Shares to Qualified Recipients. Of
those amounts, $1,749, $1,624 and $1,424, respectively, were paid
to the Distributor. All of such payments were for compensation.
During the fiscal year ended June 30, 1997, $119 was paid with
respect to Class C Shares all of which was retained by the
Distributor. All of such payments were for compensation. No
payments were made with respect to Class C Shares for the fiscal
year ended June 30, 1996; no Class C Shares were outstanding before
that time.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to the
extent that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by the
Fund within the meaning of Rule 12b-1, such payments are authorized
under the Plan: (i) the costs of the preparation of all reports and
notices to shareholders and the costs of printing and mailing such
reports and notices to existing shareholders, irrespective of
whether such reports or notices contain or are accompanied by
material intended to result in the sale of shares of the Fund or
other funds or other investments; (ii) the costs of the preparation
and setting in type of all prospectuses and statements of
additional information and the costs of printing and mailing all
prospectuses and statements of additional information to existing
shareholders; (iii) the costs of preparation, printing and mailing
of any proxy statements and proxies, irrespective of whether any
such proxy statement includes any item relating to, or directed
toward, the sale of the Fund's shares; (iv) all legal and
accounting fees relating to the preparation of any such reports,
prospectuses, statements of additional information, proxies and
proxy statements; (v) all fees and expenses relating to the
registration or qualification of the Fund and/or its shares under
the securities or "Blue-Sky" laws of any jurisdiction; (vi) all
fees under the Securities Act of 1933 and the 1940 Act, including
fees in connection with any application for exemption relating to
or directed toward the sale of the Fund's shares; (vii) all fees
and assessments of the Investment Company Institute or any
successor organization, irrespective of whether some of its
activities are designed to provide sales assistance; (viii) all
costs of the preparation and mailing of confirmations of shares
sold or redeemed or share certificates, and reports of share
balances; and (ix) all costs of responding to telephone or mail
inquiries of investors or prospective investors.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund shall be committed to the discretion of such
disinterested Trustees but that nothing in the Plan shall prevent
the involvement of others in such selection and nomination if the
final decision on any such selection and nomination is approved by
a majority of such disinterested Trustees.
The Plan states that while it is in effect, the Fund's
Administrator and Distributor shall report at least quarterly to
the Fund's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this Plan,
the identity of the Qualified Recipient of each Payment, and the
purposes for which the amounts were expended; (ii) all costs of
each item of cost specified in the Plan (making estimates of such
costs where necessary or desirable) during the preceding calendar
or fiscal quarter; and (iii) all fees of the Fund to the
distributor, sub-adviser or administrator paid or accrued during
such quarter. In addition if any such Qualified Recipient is an
affiliate, as that term is defined in the Act, of the Fund, the
Adviser, the Administrator or the Distributor, such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Fund an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined in
the 1940 Act and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the
Plan. The Plan, unless terminated as thereinafter provided,
continues in effect from year to year only so long as such
continuance is specifically approved at least annually by the
Fund's Board of Trustees and its Independent Trustees with votes
cast in person at a meeting called for the purpose of voting on
such continuance. In voting on the implementation or continuance of
the Plan, those Trustees who vote to approve such implementation or
continuance must conclude that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan
may be terminated at any time by vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the outstanding voting securities
of the Fund. The Plan may not be amended to increase materially the
amount of payments to be made without shareholder approval and all
amendments must be approved in the manner set forth above as to
continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act as
now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part IV shall be deemed to be
severable, within the meaning of and to the extent required by Rule
18f-3, with respect to each outstanding class of shares of the
Fund.
SHAREHOLDER SERVICES PLAN
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Fund of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name). The Services Plan has two parts.
Provisions for Level-Payment Class Shares (Part I)
As used in the Services Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to the Distributor
and any other principal underwriter of the Fund, who have, pursuant
to written agreements with the Fund or the Distributor, agreed to
provide personal services to shareholders of Level-Payment Class
Shares and/or maintenance of Level-Payment Class Shares shareholder
accounts. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient's customers, clients or other contacts.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to Qualified
Recipients, which Service Fees (i) may be paid directly or through
the Distributor or shareholder servicing agent as disbursing agent
and (ii) may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.25 of 1% of the
average annual net assets of the Fund represented by the
Level-Payment Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority with respect to the selection
of any Qualified Recipient or Recipients and the amount of Service
Fees, if any, paid to each Qualified Recipient, provided that the
total Service Fees paid to all Qualified Recipients may not exceed
the amount set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a) the
amount of the Qualified Holdings of the Qualified Recipient and (b)
the extent to which the Qualified Recipient has, at its expense,
taken steps in the shareholder servicing area with respect to
holders of Level-Payment Class Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Fund may
be effected; assisting shareholders in designating and changing
dividend options, account designations and addresses; providing
necessary personnel and facilities to establish and maintain
shareholder accounts and records; assisting in processing purchase
and redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer orders
to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees (as
defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years. During the
fiscal year ended June 30, 1997, $40 was paid under the Services
Plan with respect to Class C Shares, of which the Distributor
received all.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the Fund,
who have, pursuant to written agreements with the Fund or the
Distributor, agreed to provide personal services to shareholders of
Financial Intermediary Class Shares, maintenance of Financial
Intermediary Class Shares shareholder accounts and/or pursuant to
specific agreements entering confirmed purchase orders on behalf of
customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Class Shares
beneficially owned by such Qualified Recipient's customers, clients
or other contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to Qualified
Recipients, which Service Fees (i) may be paid directly or through
the Distributor or shareholder servicing agent as disbursing agent
and (ii) may not exceed, for any fiscal year of the Fund (as
adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any
fiscal year which is not a full fiscal year), 0.25 of 1% of the
average annual net assets of the Fund represented by the Financial
Intermediary Class Shares. Such payments shall be made only out of
the Fund's assets allocable to the Financial Intermediary Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and provided,
further, that no Qualified Recipient may receive more than 0.25 of
1% of the average annual net asset value of shares sold by such
Recipient. The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options, account
designations and addresses; providing necessary personnel and
facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from time
to time. Notwithstanding the foregoing two sentences, a majority of
the Independent Trustees (as defined below) may remove any person
as a Qualified Recipient. Amounts within the above limits accrued
to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any Qualified
Recipient is an "affiliated person," as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of the
Fund, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Fund an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the Trustees,
including those Trustees who, at the time of such vote, were not
"interested persons" (as defined in the 1940 Act) of the Fund and
had no direct or indirect financial interest in the operation of
the Services Plan or in any agreements related to the Services Plan
(the "Independent Trustees"), with votes cast in person at a
meeting called for the purpose of voting on the Services Plan. It
will continue in effect for a period of more than one year from its
original effective date only so long as such continuance is
specifically approved at least annually as set forth in the
preceding sentence. It may be amended in like manner and may be
terminated at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force or
hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing therein shall prevent the involvement of others
in such selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1 percent of the net
asset value of the Fund during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such
limitation, the Fund will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage costs in converting the assets
into cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing
portfolio securities described under "Net Asset Value Per Share" in
the Prospectus, and such valuation will be made as of the same time
the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their affiliations, if
any, with the Administrator or the Distributor and the principal
occupations of such persons during at least the past five years are
set forth below. Mr. Herrmann is an "interested person" of the Fund
as that term is defined in the 1940 Act as an officer of the Fund
and a Director, officer and shareholder of the Distributor. Ms.
Herrmann is an interested person as a member of his immediate
family and as a shareholder of the Distributor. Mr. Cornia is an
interested person of the Fund as a shareholder of the Sub-Adviser's
corporate parent. They are so designated by an asterisk. As of
October 1, 1997, the Trustees and officers as a group owned less
than 1% of the Fund's outstanding shares.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and Manager,
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Trust of
Oregon since 1986; Tax-Free Fund of Colorado since 1987; Churchill
Tax-Free Fund of Kentucky since 1987; and Narragansett Insured
Tax-Free Income Fund since 1992; each of which is a tax-free
municipal bond fund, and two equity funds, Aquila Rocky Mountain
Equity, Fund since 1993 and Aquila Cascadia Equity Fund, since
1996, which, together with this Fund are called the Aquila Bond and
Equity Funds; and Pacific Capital Cash Assets Trust since 1984;
Churchill Cash Reserves Trust since 1985; Pacific Capital U.S.
Treasuries Cash Assets Trust since 1988; Pacific Capital Tax-Free
Cash Assets Trust since 1988; each of which is a money market fund,
and together with Capital Cash Management Trust ("CCMT") are called
the Aquila Money-Market Funds; Vice President, Director, Secretary
and formerly Treasurer of Aquila Distributors, Inc. since 1981,
distributor of the above funds; President and Chairman of the Board
of Trustees of CCMT, a money market fund since 1981, and an Officer
and Trustee/Director of its predecessors since 1974; Chairman of
the Board of Trustees and President of Prime Cash Fund (which is
inactive), since 1982 and of Short Term Asset Reserves 1984-1996;
President and a Director of STCM Management Company, Inc., sponsor
and sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves, and
Founder and Chairman of several other money market funds; Director
or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest Global
Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and Trustee
of Quest For Value Accumulation Trust, The Saratoga Advantage
Trust, and of the Rochester Group of Funds, each of which is an
open-end investment company; Trustee of Brown University, 1990-1996
and currently Trustee Emeritus; actively involved for many years in
leadership roles with university, school and charitable
organizations.
Philip E. Albrecht, C.F.A., Trustee, 1485 Gulf of Mexico Drive,
Longboat Key, Florida, 34228
Retired; Senior Vice President, Investments of National Securities
& Research Corporation, 1973-1984; Vice President of Research of
Merrill Lynch, Pierce, Fenner & Smith, 1949-1973; past President of
The New York Society of Security Analysts; former officer and
Director of The Financial Analysts Federation; former officer and
Trustee of the Institute of Chartered Financial Analysts; active in
a similar capacity with various other professional organizations;
Trustee of Tax-Free Trust of Arizona since 1987.
Gary C. Cornia*, Trustee, 577 East 1090 North, Orem, Utah 84057
Professor and Associate Dean of the Marriott School of Management,
Brigham Young University, since 1991; Associate Professor,
1985-1991; Assistant Professor, 1980-1985; Commissioner of the Utah
Tax Commission, 1983-1986; Director of the National Tax
Association, 1990-1993; Chair of the Governor's Tax Review
Committee since 1993; Faculty Associate of the Land Reform Training
Institute, Taipei, Taiwan and The Lincoln Institute of Land Policy
Cambridge, Massachusetts.
William L. Ensign, Trustee, 2928 Cortland Place N.W., Washington,
D.C. 20008
Assistant Architect of the United States Capital, Washington, D.C.
since 1980; formerly President and Chief Executive Officer of
McLeod Ferrara Ensign, a planning, architectural, and interior
design firm, in Washington D.C. and Maryland; a Fellow and former
member of the Board of Directors of the American Institute of
Architects and past President of the Washington-Metropolitan
Chapter of the A.I.A.; active in the National Trust for Historic
Preservation; designee to the Advisory Council on Historic
Preservation; designee to the Zoning Commission of the District of
Columbia since 1989; Trustee of Tax-Free Trust of Arizona since
1986; Trustee of Oxford Cash Management Fund, 1983-1989.
George Harris, Trustee, 280 Nettleton Hollow Road, P.O. Box 1500,
Washington, Connecticut 06793
Chairman and Chief Executive Officer of Harris Chemical Group,
Inc., a producer and marketer of inorganic chemical and extractive
mineral products, including salt, soda ash and sulfate of potash,
since 1993; Chairman and CEO of Harris Specialty Chemicals, Inc.,
a manufacturer of specialty formulated chemicals for the
construction industry and specialty fluorine and silane chemicals
for the pharmaceutical and silicone industries, since 1994;
Chairman and CEO of D. George Harris & Associates, an investment
management and advisory firm, since 1987; Chairman (non-executive)
of McWhorter, Inc., a resin products company, since 1994; Senior
Investment Banking Advisor to Eberstadt Fleming Inc., an investment
banking firm, 1987-1988; President of SCM Corporation, a
manufacturing company, 1985-1986; President of its Chemical
Division, 1981-1985; formerly President of Rhone Poulenc, Inc., a
subsidiary of Rhone-Poulenc S.A., a chemical manufacturer; Trustee
of Trinity Liquid Assets Trust, 1985-1990; Trustee of Prime Cash
Fund, 1986-1992, of Churchill Tax-Free Fund of Kentucky, 1987-1993
and of Churchill Cash Reserves Trust, 1985-1993; Director of
Valspar Corporation, a manufacturer of paints and resins,
1987-1994; Director of Rexene Corporation, a manufacturer of
thermoplastic resins and petrochemical products, 1992-1994. Member
of the President's Advisory Committee on Trade Policy and
Negotiations since 1990.
Diana P. Herrmann*, Trustee and Vice President, 380 Madison Avenue,
New York, New York 10017
Trustee of Tax-Free Trust of Arizona and Tax-Free Trust of Oregon
since 1994, of Churchill Tax-Free Fund of Kentucky and Churchill
Cash Reserves Trust since 1995, of Aquila Cascadia Equity Fund
since 1996 and of Aquila Rocky Mountain Equity Fund since 1997;
President and Chief Operating Officer of the Administrator since
1997; Senior Vice President and Secretary, formerly Vice President
of the Administrator since 1986 and Director since 1984; Senior
Vice President or Vice President and formerly Assistant Vice
President of the Aquila Money-Market Funds since 1986; Vice
President of the Aquila Bond and Equity Funds since 1997; Vice
President of InCap Management Corporation since 1986 and Director
since 1983; Assistant Vice President of Oxford Cash Management
Fund, 1986-1988; Assistant Vice President and formerly Loan Officer
of European American Bank, 1981-1986; daughter of the Fund's
President; Trustee of the Leopold Schepp Foundation (academic
scholarships) since 1995; actively involved in mutual fund and
trade associations and in college and other volunteer
organizations.
Anne J. Mills, Trustee, 167 Glengarry Place, Castle Pines Village,
Castle Rock, Colorado 80104
Vice President for Business Affairs of Ottawa University since
1992; Director of Customer Fulfillment, U.S. Marketing and Services
Group, IBM Corporation, 1990-1991; Director of Business
Requirements of that Group, 1988-1990; Director of Phase Management
of that Group, 1985-1988; Budget Review Officer of the American
Baptist Churches/USA since 1994; Director of the American Baptist
Foundation since 1985; Trustee of Brown University; Trustee of
Churchill Cash Reserves Trust since 1985, of Tax-Free Trust of
Arizona since 1986 and of Churchill Tax-Free Fund of Kentucky,
Tax-Free Fund of Colorado and Capital Cash Management Trust since
1987.
R. Thayne Robson, Trustee, 3548 Westwood Drive, Salt Lake City,
Utah 84109
Director of the Bureau of Economic and Business Research, Professor
of Management, and Research Professor of Economics at the
University of Utah since 1978; Trustee of Aquila Rocky Mountain
Equity Fund since 1993; Director of the Alliance of Universities
for Democracy since 1990; Trustee of the Salt Lake Convention and
Visitors Bureau since 1984; Member of Utah Governor's Economic
Coordinating Committee since 1982; Member of the Association for
University Business and Economic Research since 1985; Director of
ARUP (a medical test laboratory) since 1988; Director of Western
Mortgage since 1989; Director of the Utah Economic Development
Corporation since 1985; Director of the Salt Lake Downtown Alliance
since 1991; Trustee of Crossroads Research Institute since 1986.
Jerry G. McGrew, Vice President, P.O. Box 662, Radcliff, Kentucky
40159
Senior Vice President of Aquila Rocky Mountain Equity Fund since
1997; Senior Vice President of Churchill Tax-Free Fund of Kentucky
since 1994, Vice President since 1987; Vice President of Churchill
Cash Reserves Trust since 1995; Registered Principal since 1993;
Vice President of Aquila Distributors, Inc. since 1993; Registered
Representative of J.J.B. Hilliard, W.L. Lyons Inc., 1983-1987;
Account Manager with IBM Corporation, 1967-1981; Gubernatorial
appointee, Kentucky Financial Institutions Board, since 1993;
Chairman, Total Quality Management for Small Business, 1990-1994;
President of Elizabethtown/Hardin County, Kentucky, Chamber of
Commerce, 1989-1991; President of Elizabethtown Country Club,
1983-1985.
Kimball L. Young, Vice President, 2049 Herbert Avenue, Salt Lake
City, Utah 84108
Utah Public Finance Manager and Senior Vice President of Boettcher
Division, Kemper Securities Group, Inc., with responsibilities for
financing capital improvement needs in numerous Utah cities, towns
and special districts, 1980-1992; formerly state assistant to U.S.
Senator Jake Garn.
Stephen J. Caridi, Vice President, 380 Madison Avenue, New York
10017
Vice President of the Distributor since 1995, Assistant Vice
President, 1988-1995, Marketing Associate, 1986-1988; Vice
President of Narragansett Insured Tax-Free Income Fund since 1996;
Mutual Funds coordinator of Prudential Bache Securities, 1984-1986;
Account Representative of Astoria Federal Savings and Loan
Association, 1979-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer of
Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of the
Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New York
10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond and
Equity Funds and of Aquila Distributors, Inc. since 1992; Associate
Director of Furman Selz Incorporated, 1991-1992; Vice President of
Scudder, Stevens & Clark, Inc. and Treasurer of Scudder
Institutional Funds, 1989-1991; Vice President of Lazard Freres
Institutional Funds Group, Treasurer of Lazard Freres Group of
Investment Companies and HT Insight Funds, Inc., 1986-1988; Vice
President of Lehman Management Co., Inc. and Assistant Treasurer of
Lehman Money Market Funds, 1981-1985; Controller of Seligman Group
of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford
Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the Aquila
Bond and Equity Funds since 1995 and Vice President of the Aquila
Money-Market Funds since 1990; Vice President of the Administrator
since 1990; Investment Services Consultant and Bank Services
Executive of Wright Investors' Service, a registered investment
adviser, 1983-1989; Member of the American Finance Association, the
Western Finance Association and the Society of Quantitative
Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the Aquila
Bond and Equity Funds since 1995; Counsel to the Administrator and
the Distributor since 1995; formerly a Legal Associate for
Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Fund does not pay fees to Trustees affiliated with the
Administrator or to any of the Fund's officers. During the fiscal
year ended June 30, 1997, the Fund paid $25,293 in fees and
reimbursement of expenses to its other Trustees. The Fund is one
of the 14 funds in the Aquilasm Group of Funds, which consist of
tax-free municipal bond funds, money market funds and two equity
funds. The following table lists the compensation of all Trustees
who received compensation from the Fund and the compensation they
received during the Fund's fiscal year from other funds in the
Aquilasm Group of Funds. None of such Trustees has any pension or
retirement benefits from the Fund or any of the other funds in the
Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Fund Group now serves
<S> <C> <C> <C>
Philip E.
Albrecht $2,271 $13,236 2
Gary C.
Cornia $3,528 $3,528 1
William L.
Ensign $700 $4,500 2
D. George
Harris $250 $250 1
Anne J.
Mills $1,923 $36,526 6
R. Thayne
Robson $2,377 $4,965 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Investment Advisory and
Administration Agreement
The Advisory and Administration Agreement provides that it
will become effective on the date of its approval by the
shareholders of the Fund and will, unless terminated as
thereinafter provided, continue in effect until the December 31
next preceding the first anniversary of the effective date of the
Advisory and Administration Agreement, and from year to year
thereafter, but only so long as such continuance is specifically
approved at least annually (1) by a vote of the Fund's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to the Advisory and Administration Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities of
the Fund and by such a vote of the Trustees.
During the fiscal years ended June 30, 1997, 1996 and 1995,
the Fund accrued in fees to the Manager under the administration
agreement then in effect, respectively, of $79,323, of which
$58,760 was waived, $76,955 of which $72,207 was waived, and
$71,539, all of which was waived. In addition, during the fiscal
year ended June 30, 1997, the Manager agreed to reimburse the Fund
for other expenses in the amount of $199,119 of which $66,512 was
paid prior to June 30, 1997 and the balance of $132,607 was paid in
July and early August of 1997. During the fiscal year ended June
30, 1996, the Manager reimbursed the Fund $187,859 in expenses.
Additional Information as to the Sub-Advisory Agreement
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform to,
and be in accordance with, any requirements imposed by: (1) the
Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws of
the Fund as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Fund; and (5) the
fundamental policies of the Fund, as reflected in its registration
statement under the Act or as amended by the shareholders of the
Fund.
The Sub-Advisory Agreement provides that the Sub-Adviser shall
give to the Manager, as defined therein, and to the Fund the
benefit of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or the
purchase, sale or retention of any security, whether or not such
purchase, sale or retention shall have been based upon (i) its own
investigation and research or (ii) investigation and research made
by any other individual, firm or corporation, if such purchase,
sale or retention shall have been made and such other individual,
firm or corporation shall have been selected in good faith by the
Sub-Adviser. Nothing therein contained shall, however, be construed
to protect the Sub-Adviser against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under the
Agreement.
The Sub-Advisory Agreement provides that nothing in it shall
prevent the Sub-Adviser or any affiliated person (as defined in the
Act) of the Sub-Adviser from acting as investment adviser or
manager for any other person, firm or corporation and shall not in
any way limit or restrict the Sub-Adviser or any such affiliated
person from buying, selling or trading any securities for its own
or their own accounts or for the accounts of others for whom it or
they may be acting, provided, however, that the Sub-Adviser
expressly represents that, while acting as Sub-Adviser, it will
undertake no activities which, in its judgment, will adversely
affect the performance of its obligations to the Fund under the
Agreement. It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness of the
Fund's Registration Statement under the Act and the Securities Act
of 1933, except for information supplied by the Sub-Adviser for
inclusion therein. The Sub-Adviser shall promptly inform the Fund
as to any information concerning the Sub-Adviser appropriate for
inclusion in such Registration Statement, or as to any transaction
or proposed transaction which might result in an assignment (as
defined in the Act) of the Agreement. To the extent that the
Manager is indemnified under the Fund's Declaration of Trust with
respect to the services provided hereunder by the Sub-Adviser, the
Manager agrees to provide the Sub-Adviser the benefits of such
indemnification.
The Sub-Advisory Agreement provides that in connection with
its duties to arrange for the purchase and sale of the Fund's
portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's judgment,
implement the policy of the Fund to achieve "best execution," i.e.,
prompt, efficient, and reliable execution of orders at the most
favorable net price. The Sub-Adviser shall cause the Fund to deal
directly with the selling or purchasing principal or market maker
without incurring brokerage commissions unless the Sub-Adviser
determines that better price or execution may be obtained by paying
such commissions; the Fund expects that most transactions will be
principal transactions at net prices and that the Fund will incur
little or no brokerage costs. The Fund understands that purchases
from underwriters include a commission or concession paid by the
issuer to the underwriter and that principal transactions placed
through dealers include a spread between the bid and asked prices.
In allocating transactions to dealers, the Sub-Adviser is
authorized to consider, in determining whether a particular dealer
will provide best execution, the dealer's reliability, integrity,
financial condition and risk in positioning the securities
involved, as well as the difficulty of the transaction in question,
and thus need not pay the lowest spread or commission available if
the Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the brokerage
and research services provided by the dealer, viewed either in
terms of the particular transaction or the Sub-Adviser's overall
responsibilities. If, on the foregoing basis, the transaction in
question could be allocated to two or more dealers, the Sub-Adviser
is authorized, in making such allocation, to consider (i) whether
a dealer has provided research services, as further discussed
below; and (ii) whether a dealer has sold shares of the Fund. Such
research may be in written form or through direct contact with
individuals and may include quotations on portfolio securities and
information on particular issuers and industries, as well as on
market, economic, or institutional activities. The Fund recognizes
that no dollar value can be placed on such research services or on
execution services and that such research services may or may not
be useful to the Fund and may be used for the benefit of the
Sub-Adviser or its other clients.
During the fiscal years ended June 30, 1997, 1996 and 1995,
all of the Fund's transactions were principal transactions and no
brokerage commissions were paid.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Fund as are required by applicable law and regulation, and
agrees that all records which it maintains for the Fund on behalf
of the Manager shall be the property of the Fund and shall be
surrendered promptly to the Fund or the Manager upon request. The
Sub-Adviser agrees to furnish to the Manager and to the Board of
Trustees of the Fund such periodic and special reports as each may
reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser shall
bear all of the expenses it incurs in fulfilling its obligations
under the Agreement. In particular, but without limiting the
generality of the foregoing: the Sub-Adviser shall furnish the
Fund, at the Sub-Adviser's expense, all office space, facilities,
equipment and clerical personnel necessary for carrying out its
duties under the Agreement. The Sub-Adviser shall supply, or cause
to be supplied, to any investment adviser, administrator or
principal underwriter of the Fund all necessary financial
information in connection with such adviser's, administrator's or
principal underwriter's duties under any agreement between such
adviser, administrator or principal underwriter and the Fund. The
Sub-Adviser will also pay all compensation of the Fund's officers,
employees, and Trustees, if any, who are affiliated persons of the
Sub-Adviser.
The Sub-Advisory Agreement provides that it will become
effective on the day it is approved by the shareholders of the Fund
(the "Effective Date") and shall, unless terminated as thereinafter
provided, continue in effect until the December 31 next preceding
the first anniversary of the effective date of the Agreement, and
from year to year thereafter, but only so long as such continuance
is specifically approved at least annually (1) by a vote of the
Fund's Board of Trustees, including a vote of a majority of the
Trustees who are not parties to the Agreement or "interested
persons" (as defined in the Act) of any such party, with votes cast
in person at a meeting called for the purpose of voting on such
approval, or (2) by a vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Fund and by
such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be terminated
by the Sub-Adviser at any time without penalty upon giving the
Manager and the Fund sixty days' written notice (which notice may
be waived). It may be terminated by the Manager or the Fund at any
time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser),
provided that such termination by the Fund shall be directed or
approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the
Act) of the voting securities of the Fund outstanding and entitled
to vote. The Sub-Advisory Agreement will automatically terminate in
the event of its assignment (as defined in the Act) or the
termination of the Investment Advisory Agreement. The Sub-Adviser
agrees that it will not exercise its termination rights for at
least three years from the effective date of the Agreement, except
for regulatory reasons.
During the fiscal years ended June 30, 1997, 1996 and 1995,
the Fund accrued in fees to the Sub-Adviser under the advisory
agreement then in effect of $67,588, $65,552 and $60,941,
respectively, of which $49,962, $55,749 and $47,747, respectively,
was waived.
Glass-Steagall Act and Certain Other Banking Laws
The United States Supreme Court has held that the federal
statute commonly referred to as the Glass-Steagall Act prohibits a
national bank or its affiliates from operating a fund for the
collective investment of managed agency accounts. Subsequently, the
Board of Governors of the Federal Reserve System (the "Board")
issued a regulation and interpretation to the effect that the
Glass-Steagall Act and the Supreme Court's Decision: (a) prohibit
an affiliate of a bank holding company registered under the Federal
Bank Holding Company Act of 1956 (the "Holding Company Act"), like
the Sub-Adviser, from sponsoring, organizing, or controlling a
registered, open-end investment company (mutual fund); but (b) do
not prohibit such an affiliate from acting as investment adviser,
transfer agent or custodian to such an investment company. Later,
the United States Supreme Court held that the Board did not exceed
its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding company
affiliates to act as investment advisers to registered investment
companies.
The Sub-Adviser been advised that the Sub-Adviser may perform
the services for the Fund contemplated by the Prospectus, the
Additional Statement, and the Investment Advisory Agreement without
thereby violating applicable statutes and regulations, provided
that the Sub-Adviser adheres to the limitations imposed by the
Board in its Regulation Y and other applicable regulatory
pronouncements.
Future changes in either federal or state statutes and
regulations relating to permissible activities of banks or bank
holding companies and the subsidiaries or affiliates of those
entities, as well as further judicial or administrative decisions
or interpretations of present and future statutes and regulations,
could prevent or restrict the Sub-Adviser from continuing to
perform such services for the Fund. Depending on the nature of any
changes in the services which could be provided by the Sub-Adviser,
the Board of Trustees of the Fund would review the Fund's
relationship with the Sub-Adviser and consider taking all action
necessary in the circumstances.
COMPUTATION OF NET ASSET VALUE
The net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open, by dividing the
value of the Fund's net assets allocable to each class by the total
number of shares of such class then outstanding. Securities having
a remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of sixty
days but which currently have maturities of sixty days or less are
valued at cost adjusted for amortization of premiums and accretion
of discounts, so long as the Board of Trustees has determined that
amortized cost represents fair value for these securities. All
other portfolio securities are valued at the mean between bid and
asked quotations which, for Utah Double-Exempt Obligations, may be
obtained from a reputable pricing service or from one or more
broker-dealers dealing in Utah Double-Exempt Obligations, either of
which may, in turn, obtain quotations from broker-dealers or banks
which deal in specific issues. However, since Utah Double-Exempt
Obligations are ordinarily purchased and sold on a "yield" basis by
banks or dealers which act for their own account and do not
ordinarily make continuous offerings, quotations obtained from such
sources may be subject to greater fluctuations than is warranted by
prevailing market conditions. Accordingly, some or all of the Utah
Double-Exempt Obligations in the Fund's portfolio may be priced,
with the approval of the Fund's Board of Trustees, by differential
comparisons to the market in other municipal bonds under methods
which include consideration of the current market value of tax-free
debt instruments having varying characteristics of quality, yield
and maturity. Any securities or assets for which market quotations
are not readily available are valued at their fair value as
determined in good faith under procedures established by and under
the general supervision and responsibility of the Fund's Board of
Trustees. In the case of Utah Double-Exempt Obligations, such
procedures may include "matrix" comparisons to the prices for other
tax-free debt instruments on the basis of the comparability of
their quality, yield, maturity and other special factors, if any,
involved. With the approval of the Fund's Board of Trustees, the
Sub-Adviser may at its own expense and without reimbursement from
the Fund employ a pricing service, bank or broker-dealer
experienced in such matters to perform any of the above described
functions.
As indicated above, the net asset value per share of the
Fund's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, that Exchange may close on days not
included in that announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number
of instances in which the Fund's shares are sold or issued on a
basis other than the maximum public offering price, that is, the
net asset value plus the highest sales charge. Some of these relate
to lower or eliminated sales charges for larger purchases, whether
made at one time or over a period of time as under a Letter of
Intent or right of accumulation. (See the table of sales charges in
the Prospectus.) The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as
to sales of shares of other funds having such discounts; and (ii)
they are designed to avoid an unduly large dollar amount of sales
charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related
persons ("single purchasers") for reasons of family unity and to
provide a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced
or eliminated sales charges for Class A Shares are as follows.
Exchanges at net asset value are permitted because a sales charge
has already been paid on the shares exchanged. Sales without sales
charge are permitted to Trustees, officers and certain others due
to reduced or eliminated selling expenses and/or since such sales
may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Fund. Limited
reinvestments of redemptions of Class A Shares and Class C Shares
at no sales charge are permitted to attempt to protect against
mistaken or incompletely informed redemption decisions. Shares may
be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such
issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in
which there is a reduced or eliminated sales charge are the
interests of existing shareholders adversely affected since, in
each case, the Fund receives the net asset value per share of all
shares sold or issued.
AUTOMATIC WITHDRAWAL PLAN
If you own or purchase Class A Shares or Class Y Shares of the
Fund having a net asset value of at least $5,000 you may establish
an Automatic Withdrawal Plan under which you will receive a monthly
or quarterly check in a stated amount, not less than $50. Stock
certificates will not be issued for shares held under an Automatic
Withdrawal Plan. All dividends and distributions must be
reinvested. Shares will be redeemed on the last business day of the
month or quarter as may be necessary to meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate your account. The monthly or quarterly payments paid
to you may not be considered as a yield or income on investment.
ADDITIONAL TAX INFORMATION
If you incur a sales commission on a purchase of shares of one
mutual fund (the original fund) and sell or exchange them for
shares of a different mutual fund without having held them at least
91 days, you must reduce the tax basis for the shares sold or
exchanged to the extent that the standard sales commission charged
for acquiring shares in the exchange or later acquiring shares of
the original fund or another fund is reduced because of the
shareholder's having owned the original fund shares. The effect of
the rule is to increase your gain or reduce your loss on the
original fund shares. The amount of the basis reduction on the
original fund shares, however, is added on the investor's basis for
the fund shares acquired in the exchange or later acquired. The
provision applies to commissions charged after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level-Payment Class Shares ("Class C Shares") of the Fund,
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Fund based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the sixth
anniversary of the your initial purchase of such Class C Shares
occurs. For these purposes, the date of your initial purchase shall
mean (1) the first business day of the month in which such Class
C Shares were issued to you, or (2) for Class C Shares of the Fund
you have obtained through an exchange or series of exchanges under
the Exchange Privilege (see "Exchange Privilege" in the
Prospectus), the first business day of the month in which you made
the original purchase of Class C Shares so exchanged. For
conversion purposes, Class C Shares purchased through reinvestment
of dividends or other distributions paid in respect of Class C
Shares will be held in a separate sub-account. Each time any Class
C Shares in your regular account (other than those in the
sub-account) convert to Class A Shares, a pro-rata portion of the
Class C Shares in the sub-account will also convert to Class A
Shares. The portion will be determined by the ratio that your Class
C Shares then converting to Class A Shares bears to the total of
your Class C Shares not acquired through reinvestment of dividends
and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the dividends
and other distributions paid on Class A Shares and Class C Shares
will not result in "preferential dividends" under the Code; and (2)
the conversion of shares does not constitute a taxable event. If
the conversion feature ceased to be available, the Class C Shares
of the Fund would not be converted and would continue to be subject
to the higher ongoing expenses of the Class C Shares beyond six
years from the date of purchase. The Fund has no reason to believe
that these conditions for the availability of the conversion
feature will not continue to be met.
If the Fund implements any amendments to its Distribution Plan
that would increase materially the costs that may be borne under
such Distribution Plan by Class A Shares shareholders, Class C
Shares will stop converting into Class A Shares unless a majority
of Class C Shares shareholders, voting separately as a class,
approve the proposal.
GENERAL INFORMATION
Possible Additional Series
If additional Series (as discussed in the Prospectus) were
created by the Board of Trustees, shares of each such Series would
be entitled to vote as a Series only to the extent permitted by the
1940 Act (see below) or as permitted by the Board of Trustees.
Income and operating expenses would be allocated among two or more
series in a manner acceptable to the Board of Trustees.
Under Rule 18f-2 under the 1940 Act, any matter required to be
submitted to shareholder vote is not deemed to have been
effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of
each Series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains
special provisions for cases in which an advisory contract is
approved by one or more, but not all, Series. A change in
investment policy may go into effect as to one or more Series whose
holders so approve the change, even though the required vote is not
obtained as to the holders of other affected Series.
Ownership of Securities
Of the shares of the Fund outstanding on September 30, 1997,
Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561 New
Brunswick, NJ held of record 484,960 Class A Shares (16.8% of the
class) and 3,581 Class C Shares (19.2% of the class); BHC
Securities Inc., 2005 Market Street, Philadelphia, PA held of
record 493,382 Class A Shares (17.1% of the class). Dean Witter,
New York, NY held of record 12,988 Class C Shares (69.6% of the
class); and Dain Bosworth Inc. held of record 977 Class C Shares
(5.2% of the class). On the basis of information received from
those holders, the Fund's management believes that all of such
shares are held for the benefit of brokerage clients. Aquila
Management Corporation held of record 11.2 Class Y Shares (100% of
the class).
The Fund's management is not aware of any other person owning
of record or beneficially 5% or more of the shares of any class of
Fund's outstanding shares as of that date.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Fund may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. For shareholder
protection, however, an express disclaimer of shareholder liability
for acts or obligations of the Fund is contained in the Declaration
of Trust which requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed
by the Fund or the Trustees. The Declaration of Trust provides for
indemnification out of the Fund's property of any shareholder held
personally liable for the obligations of the Fund. The Declaration
of Trust also provides that the Fund shall, upon request, assume
the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote
circumstances in which the Fund itself would be unable to meet its
obligations. In the event the Fund had two or more Series, and if
any such Series were to be unable to meet the Fund's obligations
attributable to it (which, as is the case with the Fund, is
relatively remote), the other Series would be subject to such
obligations, with a corresponding increase in the risk of the
shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Fund out of the property of the Fund and provides that they
will not be liable for errors of judgment or mistakes of fact or
law; but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of the
office of Trustee.
Underwriting Commissions
During the year ended June 30, 1997, the aggregate dollar
amount of sales charges on sales of shares in the Fund was $121,809
and the amount retained by the Distributor was $1,637.
Custodian and Auditors
The Fund's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Fund's assets.
The Fund's auditors, KPMG Peat Marwick LLP, perform an annual
audit of the Fund's financial statements.
The financial statements for the Fund for the year ended June
30, 1997, which are contained in the Annual Report for that fiscal
year, are hereby incorporated by reference into the Additional
Statement. Those financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors, whose report thereon is
incorporated herein by reference.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price
or suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher
rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing the
designation SP-1 are deemed very strong or to have strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation. Notes bearing the designation SP-2 are deemed to have
a satisfactory capacity to pay principal and interest.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in
Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some
time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's Investment
Grade as MIG 1 through MIG 4. In the case of variable rate demand
obligations (VRDOs), two ratings are assigned; one representing an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When no rating is applied to the long
or short-term aspect of a VRDO, it will be designated NR. Issues or
the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings.
Each rating designation is unique with no implication as to any
other similar issue of the same obligor. MIG ratings terminate at
the retirement of the obligation while VMIG rating expiration will
be a function of each issuer's specific structural or credit
features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins
of protection are ample although not so large
as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access for
refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of an
investment security is present and although
not distinctly or predominantly speculative,
there is specific risk.
<PAGE>
INVESTMENT SUB-ADVISER
First Security Investment Management, Inc.
61 South Main Street
Salt Lake City, Utah 84111
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
After November 8, 1997:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
Before November 8, 1997:
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
AQUILA
TAX-FREE FUND FOR
[LOGO]
UTAH
Statement of
Additional
Information
A tax-free
income investment
One Of The
Aquilasm Group Of Funds
